UNIVERSITY   OF    CALIFORNIA 

COLLEGE   OF    AGRICULTURE 

AGRICULTURAL    EXPERIMENT    STATION 

BERKELEY,    CALIFORNIA 


SOME  ECONOMIC  PROBLEMS  INVOLVED 
IN  THE  POOLING  OF  FRUIT 

H.  E.  ERDMAN  and  H.  R.  WELLMAN 


BULLETIN  432 

September,  1927 


UNIVERSITY  OF  CALIFORNIA  PRINTING  OFFICE 

BERKELEY,  CALIFORNIA 

1927 


SOME  ECONOMIC    PROBLEMS  INVOLVED  IN    THE 
POOLING  OF  FRUIT 

H.  E.  ERDMANi  and  H.  R.  WELLMAN2 


METHODS   BY  WHICH   A   COOPERATIVE    MARKETING    ASSOCIATION 
MAY    HANDLE   THE    PRODUCTS    OF    ITS    MEMBERS 

A  cooperative  marketing  association  may  handle  the  products  of 
its  members  in  one  or  more  of  several  ways:  it  may  (1)  buy  the 
products  of  the  members  outright  at  prices  specified  at  or  prior  to 
delivery,  (2)  sell  the  products  on  the  individual  grower's  account,  or 
(3)  operate  on  a  pooling  basis. 

Outright  Purchase  at  Specified  Prices. — The  system  of  buying  out- 
right at  specified  prices  is  not  used  by  the  cooperative  fruit-marketing 
associations  in  California.  The  principal  disadvantage  of  this  system 
may  be  summarized  as  follows:3 

(1)  The  manager  of  the  association,  if  he  is  to  perform  his  task 
properly  under  this  system,  must  have  an  accurate  knowledge  of 
prices,  a  knowledge  which  the  managers  of  local  associations,  in  par- 
ticular, do  not  have.  It  might  easily  happen  that  a  manager's  desire 
for  additional  business  would  cause  him  to  pay  more  for  the  goods 
than  they  were  worth.  Also,  the  determination  of  price  may  develop 
into  a  bargaining  issue  between  the  manager  and  the  members,  result- 
ing in  the  payment  of  different  prices  to  various  members  for  products 
of  similar  quality. 

(2)  Buying  for  cash  places  a  heavy  financial  burden  on  the  asso- 
ciation. When  an  association  is  operating  under  this  system,  it  must 
not  only  have  a  sufficient  supply  of  ready  funds  in  order  to  pay  the 
members  as  soon  as  the  products  are  delivered,  but  it  must  also  main- 
tain a  reserve  fund  out  of  which  losses  can  be  paid. 

Selling  on  Individual  Grower's  Account. — The  practice  of  selling 
on  individual  grower's  account  is  most  prevalent  in  the  cooperative 
marketing  of  deciduous  fruit.    For  example,  nearly  half  of  the  local 


1  Professor    of    Agricultural    Economics,    and    Agricultural    Economist    in    the 
Experiment  Station. 

2  Extension  Specialist  in  Agricultural  Economics. 

s  Black,  John  D.,  and  H.  Bruce  Price.     Cooperative  central  marketing  organ- 
ization.   Minnesota  Agr.  Exp.  Sta.  Bui.  211:41-44.     1924. 


4  UNIVERSITY    OF    CALIFORNIA EXPERIMENT    STATION 

associations  of  the  California  Fruit  Exchange  in  1926  handled  all  or 
portions  of  the  products  of  their  members  in  this  way.  Two  important 
reasons  why  pooling  has  not  been  as  generally  adopted  with  deciduous 
fruits  as  it  has  with  citrus  and  dried  fruits  are  that  (1)  deciduous 
fruits  are  commonly  graded  and  packed  on  the  ranches  by  the  growers 
themselves,  and  (2)  it  is  difficult  to  grade  certain  deciduous  fruits 
accurately  even  when  the  grading  is  performed  in  community  packing 
houses. 

During  the  summer  of  1926,  57.5  per  cent  of  the  fruit  shipped 
by  53  local  associations  of  the  California  Fruit  Exchange  was  packed 
on  the  growers'  ranches  and  42.5  per  cent  was  packed  in  community 
packing  houses  (table  1).     In  8  of  these  associations  all  of  the  fruit 

TABLE  1 

Extent  of  Banch  Packing,  House  Packing,  Pooling,  and  Sale  for  Individual 

Account  Among  Fifty-three  Local  Associations  of  the 

California  Fruit  Exchange  in  1926 


Number  of  associations 

House  pack 

Ranch  pack 

Part  house 
Part  ranch 

Total 

Pooled  only   . 

12 

8 
4 

3 
5 

0 

4 

11 

6 

19 

Sold  only  on  individual  account 

24 

Part  pooled  and  part  on  individual 
account 

10 

Total 

24 

8 

21 

53 

was  packed  on  the  ranches;  in  24  all  of  it  was  packed  in  community 
packing  houses,  and  in  21  part  was  packed  on  the  ranch  and  part  in 
community  packing  houses. 

Most  of  the  associations  which  pool  the  fruit  of  their  members 
employ  the  house-pack.  The  general  experience  in  the  pooling  of  fruit 
has  been  that  if  it  is  to  be  graded  with  sufficient  accuracy  for  equitable 
pooling,  it  is  desirable  that  the  grading  be  done  in  a  community  pack- 
ing house  instead  of  on  the  ranch  by  the  individual  growers.  Conse- 
quently, if  the  conditions  are  not  favorable  for  the  establishment  of 
a  community  packing  house,  the  general  tendency  is  for  the  associa- 
tion to  sell  the  fruit  on  the  individual  growers'  account. 

Pooling. — The  term  pooling  is  often  applied  to  any  form  of  co- 
operative marketing.  It  is  misleading  to  use  the  term  in  this  way. 
Pooling  is  a  particular  method  by  which  cooperative  marketing  asso- 
ciations handle  the  products  of  their  members. 


BUL.   432]       SOME   ECONOMIC   PROBLEMS   INVOLVED   IN    POOLING   FRUIT         5 

The  selection  of  a  pooling  plan  involves  a  decision  as  to  the  number 
of  grades  to  be  used  as  a  basis  for  pooling,  the  amount  of  territory  to 
be  included  in  the  pool,  and  the  length  of  the  pooling  period.  Each 
of  these  is  capable  of  independent  variation ;  thus  a  grade  may  be 
wide  or  narrow,  the  area  in  the  pool  may  be  confined  to  one  locality 
or  it  may  extend  over  the  entire  state,  and  the  length  of  the  pooling 
period  may  be  for  a  day  or  even  less  or  it  may  be  for  the  entire  season. 
Consequently,  it  is  necessary  to  analyze  the  ways  in  which  variations 
in  the  grades,  the  area,  and  the  pooling  periods  affect  the  functioning 
of  the  organization;  in  particular  their  effect  upon  the  following 
points  must  be  given  careful  attention : 

First,  will  the  pooling  plan  enable  the  association  to  operate  in  a 
way  that  is  fair  to  the  members  ?  That  is :  ( 1 )  does  it  provide  the 
proper  differential  between  members,  when  variations  exist  in  the 
quality  of  the  product  and  in  the  time  of  maturity  because  of  varying 
efficiency  of  the  individuals  and  because  of  the  differences  in  climatic 
and  soil  conditions?  (2)  Does  it  distribute  the  marketing  risks  equit- 
ably among  the  members?  (3)  Does  it  provide  for  the  equitable  pro- 
rating of  the  expenses  among  the  members? 

Second,  will  the  pooling  plan  enable  the  association  to  operate 
adequately  and  efficiently?  Does  it  give  the  management  the  neces- 
sary control  of  the  product  as  to  time,  place,  and  new  markets,  and 
the  power  to  bargain  advantageously,  and  does  it  tend  to  reduce  the 
costs  of  operation? 

MAINTENANCE    OF    A    PROPER    DIFFERENTIAL    BETWEEN 

MEMBERS 

In  order  to  be  fair  to  the  members  it  is  essential  that  the  method 
of  pooling  employed  by  an  association  provide  the  proper  differential 
between  members,  when  variations  exist  in  the  quality  of  the  product 
and  in  the  time  of  maturity  because  of  varying  efficiency  of  the  indi- 
viduals and  because  of  differences  in  climatic  and  soil  conditions. 

Grading  as  a  Basis  for  Pooling. — In  selecting  a  pooling  plan  an 
association  must  decide  upon  the  number  and  content  of  groups  into 
which  the  fruit  is  to  be  sorted.  The  basis  upon  which  this  decision 
should  ultimately  rest  is  one  of  fairness  to  the  members.  No  definite 
number  of  size  and  quality  grades  can  be  given  that  will  be  applicable 
to  all  fruits  under  all  conditions,  but  the  general  principle  can  be  laid 
down  that  in  so  far  as  it  is  commercially  feasible,  grading  should  he 
carried  to  the  point  where  all  of  the  products  in  a  given  grade  make 
the  same  appeal  to  the  buyer. 


UNIVERSITY    OF    CALIFORNIA EXPERIMENT    STATION 


Market-price  differentials  are  the  starting  place  in  determining  the 
number  of  grades  which  it  is  feasible  to  establish  as  a  basis  for  pool- 
ing. How  many  different  varieties,  qualities,  and  sizes  do  buyers 
recognize  by  differences  in  price  when  they  are  purchasing  a  given 
fruit?     Table   2   gives   some  examples   of   differences   in  the   prices 

TABLE  2 

Examples  of  Differences  in  the  Prices  Paid  for  Different  Sizes  of  a 

Given  Quality  of  Fruit 


Kind  of  fruit 

Variety 

Quality 

Size 

Price 

Period 

Plums* 

All 

Best 

4x4 

$1.76  per  box 
1.43 
1.32 
1.32 
1.14 
1.13 
1.65 
2.24 
2.24 

0.095  per  pound 
0.081 
0.061 
0.053 
0.047 
0.029 
0.024 
0.021 
0.010 
0.010 
0.095 
0.079 
0.050 
0.044 
0.039 

1923  season 

Navel 

Fancy 

4x5 

5x5 

5x6 

6x6 

Orangesf 

Large 

Third  pool, 
1922-23 

Sunsweet.... 
A 

126's 

Regular 

Small 

PrunesJ 

20/30 

30/40 

1923  crop 

Muirs 

40/50 

50/60 

60/70 

70/80.  .. 

Peaches 

80/90 

90/100 

100/120 

120/up 

Ex.  Fancy  . 

Fancy 

Ex.  Choice. 

Choice 

Standard... 

1923  crop 

(dried) 

Sources  of  data 

Tudsbury,  R.  L. 


The  Blue  Anchor  1  (5)  :13,  1924.   (Prices 


Pooling  deciduous  fruits  and  methods, 
received  by  the  Loomis  Fruit  Growers  Association.) 

t  Annual  Report  of  the  Glendora  Citrus  Association,  1922-23. 

X  California  Prune  and  Apricot  Growers  Association;  interview,  J.  T.  Brooks,  Sept.  15,  1925,  San  Jose. 

§  California  Peach  and  Fig  Growers;  interview,  G.  W.  Danielson,  Nov.  19,  1925,  Fresno. 

offered  for  fruit  of  like  quality.  Table  3  gives  some  examples  of 
differences  in  the  prices  of  fruit  of  like  sizes  but  of  different  quality. 
In  general  it  may  be  said  that  the  narrower  the  limits  of  a  grade 
the  nearer  will  each  grower  come  to  obtaining  the  full  return  which 
his  particular  product  brings  on  the  market.  Of  course,  it  would 
be  uneconomical  to  grade  beyond  the  point  recognized  by  the  buyers. 
For  instance,  if  two  sizes  of  oranges,  64s  and  80s,  consistently  brought 


BUL.   432]       SOME   ECONOMIC   PROBLEMS   INVOLVED   IN   POOLING   FRUIT         7 

the  same  price  in  all  markets,  the  growers  would  gain  nothing  by  pool- 
ing them  separately,  and  the  additional  expense  involved  would  reduce 
their  returns.  Likewise,  it  sometimes  happens  that  although  buyers 
may  pay  more  for  one  box  of  pears  in  a  given  grade  than  for  another 
box  in  the  same  grade,  it  is  not  worth  while  to  provide  for  an  addi- 
tional grade,  because  (1)  the  association  may  have  so  little  of  one  of 
the  grades  that  it  is  not  profitable  to  establish  a  separate  pool  for  it, 
or  (2)  the  additional  returns  obtained  by  making  the  two  grades  may 
be  less  than  the  additional  expense  involved. 


TABLE  3 
Examples  of  Differences  in  the  Prices  Paid  for  Different  Qualities  of  a 

Given  Size  of  Fruit 


Kind  of  fruit 

Variety 

Size 

Quality 

Price 

Unit 

Period 

Cherries* 

Peaches* 

Burbank 

Albright . 

11  row.. 

55's 

150's 

4x5 

126's 

First 

Second. 

First 

Second. 

First 

Second. 

First 

Second. 

First 

Second. 

$2.86 
2.20 
2.28 
1.95 
3.66 
3.01 
1.95 
1.30 
1.65 
1.18 

Box 

Box 

Box 

Crate 

Box 

May  10-16,  1925 
Aug.  3-9,  1924 
Aug.  3-9,  1924 
June  23-29,  1924 

Pears* 

Bartlett 

Plums* 

Santa  Rosa.... 
Navel 

Oranges f 

Third  pool,  1922-23 

Sources  of  data: 

*  R.  L.  Tudsbury,  Manager  Loomis  Fruit  Growers  Association,  interview,  July,  1925. 
t  Annual  Report  of  the  Glendora  Citrus  Association,  1922-23. 

When  a  marked  variation  exists  in  the  quality  of  different  lots 
in  the  same  grade,  the  practical  effect  of  pooling  is  to  lower  the  price 
of  the  finest  fruit  in  a  grade  and  to  raise  the  price  of  the  fruit  that 
can  just  enter  the  grade.  Under  this  condition  pooling  has  a  tendency 
to  discourage  the  production  of  fruit  of  the  highest  quality.  Since 
only  the  average  price  is  obtained  for  any  fruit  contributed  to  a  pool, 
a  particularly  skillful  grower  will  not,  under  the  above  conditions, 
receive  the  full  reward  for  his  superiority.  Under  such  conditions 
he  may  withdraw  from  the  association,  thus  weakening  it  to  that 
extent,  or  he  may  allow  his  fruit  to  deteriorate  to  the  general  level. 
On  the  other  hand,  an  unskillful  grower  has  no  particular  incentive 
to  increase  the  quality  of  his  fruit.  Realizing  that  the  identity  of  his 
fruit  is  lost  in  a  pool,  he  may  be  content  to  hold  his  fruit  up  to  that 
point  which  will  just  bring  it  above  the  lower  limits  of  the  grade, 
trusting  that  his  more  energetic  neighbors  will  raise  the  average  net 
price  of  the  grade  to  a  remunerative  level. 


UNIVERSITY    OF    CALIFORNIA EXPERIMENT    STATION 


EFFECT   OF    THE    AREA    IN    THE    POOL    UPON    THE    MAINTENANCE 
OF  A   PROPER   DIFFERENTIAL 

Local  Pools  for  Citrus  and  Deciduous  Fy*uits. — In  the  cooperative 
marketing  of  fresh  fruits  the  pooling  area  must  generally  be  small 
in  order  to  maintain  the  proper  differential  between  members,  because 
commercial  grading  cannot  be  performed  with  sufficient  accuracy  to 
detect  the  variations  which  buyers  recognize  in  the  quality  of  these 
fruits  produced  in  different  sections  of  the  state.  The  possibility  of 
obtaining  recognized  uniformity  within  a  given  grade  is  usually 
greater  in  a  small  than  in  a  large  territory.  There  are  a  number  of 
reasons  for  this  which  deserve  enumeration. 

1.  The  factors  which  affect  quality,  such  as  soil,  climate,  and 
cultural  practices  are  generally  more  uniform  in  a  small  than  in  a 
large  area,  although  conditions  within  the  same  grove  may  vary 
widely,  and  the  conditions  between  two  groves  in  the  same  district 
at  times  vary  as  widely  as  those  between  two  groves  in  widely  separated 
districts. 

2.  The  methods  of  handling  fresh  fruits  in  the  packing  house  have 
an  important  effect  upon  quality.4  Some  local  associations  exercise 
great  care  in  handling  their  fruit  in  the  packing  houses  and  attribute 
a  considerable  share  of  the  high  prices  which  they  receive  to  this 
factor.  Others  are  less  particular  in  this  regard,  believing  perhaps, 
that  the  additional  price  which  they  might  receive  would  not  justify 
the  additional  expenses  which  it  would  be  necessary  to  incur. 

3.  Grading  can  be  put  on  an  equitable  basis  more  readily  in  local 
than  in  general  pools,  because  it  can  be  performed  more  uniformly 
if  done  by  a  few  individuals  assembled  in  one  place  than  if  done  in 
many  widely  separated  places  by  people  not  in  constant  touch  with 
one  another.5 

Community  Packing  Houses. — All  of  the  citrus  associations  and 
about  half  of  the  deciduous-fruit  associations  grade  and  pack  in 
community  packing  houses.  In  the  San  Joaquin  Valley  practically 
all  of  the  associations  that  handle  grapes  on  a  pooling  basis  grade 
the  product  in  community  packing  houses.  In  the  deciduous-tree-fruit 
districts,  however,  community  packing  is  a  more  recent  development. 
It  originated  at  approximately  the  same  time  and  partly  as  a  result 

4  Chandler,  W.  II.     Fruit  growing,  pp.  665-704.     Houghton  Mifflin  Co.,  Boston. 
1925. 

c  See  p.  10. 


BUL.  432]       SOME  ECONOMIC   PROBLEMS   INVOLVED   IN   POOLING   FRUIT         9 

of  the  introduction  of  pooling,  since  it  is  very  difficult  even  with  an 
expensive  field  and  platform-inspection  system  to  have  the  various 
ranch  packs  sufficiently  uniform  for  pooling.  The  perishability  of 
certain  kinds  of  tree  fruits,  such  as  plums,  peaches,  cherries,  etc.,  has 
tended  to  delay  the  development  of  community  packing  of  such  fruits. 
In  the  hilly  sections  of  the  state,  where  the  roads  are  often  rough, 
growers  cannot  haul  their  unpacked  fruit  very  far  to  the  packing 
houses,  because  of  the  damage  resulting  from*  bruises,  etc. 

Another  reason  why  the  community  packing  house  has  been  slow 
in  coming  in  some  sections  is  that  many  growers,  particularly  those 
having  only  small  amounts  of  fruit,  believe  that  they  can  do  the  grad- 
ing and  packing  more  cheaply  on  the  ranch  than  it  can  be  done  in  a 
community  packing  house,  particularly  if  they  already  have  packing 
and  grading  equipment.  The '  community  packing  house  must  com- 
pete with  the  grower  who  packs  his  fruit  on  the  ranch.  The  family 
labor  of  a  small  grower  is  often  sufficient  to  grade  and  pack  all  or 
most  of  his  fruit.  In  comparing  the  costs  of  the  community  packing 
house  with  those  incurred  by  himself,  he  frequently  includes  in  his 
own  costs  only  his  direct  money  expenditures.  His  own  labor  and 
that  of  his  family,  as  well  as  the  use  of  his  ordinary  farm  equipment, 
are  not  considered  as  costs  directly  chargeable  to  grading  and  packing 
the  fruit.  Any  savings  which  he  may  obtain  in  this  way,  however 
small,  are  usually  regarded  as  clear  gain,  although  the  probabilities 
are  that  the  actual  reward  which  is  received  for  the  work  of  the 
members  of  the  farm  family  is  considerably  below  that  paid  in  nearby 
packing  houses.  With  the  development  of  community  packing  houses 
it  is  becoming  more  difficult  for  ranchers  to  obtain  the  necessary  extra 
help  for  grading  and  packing  because  work  in  the  community  houses 
is  more  attractive  as  well  as  more  steady. 

A  community  packing  house  is  not  an  absolute  requirement  for 
successful  pooling.  One  association,  although  it  has  a  ranch  pack,  has 
nevertheless  put  out  a  sufficiently  uniform  product  to  permit  success- 
ful pooling.  An  adequate  inspection  system  which  includes  careful 
inspection  both  in  the  field  and  at  the  loading  platform  is  mainly 
responsible  for  this  association's  success  in  pooling.  Although  field 
packs  may  be  pooled  with  satisfactory  results,  the  plan  is  not  gen- 
erally recommended.  The  tendency  is  for  the  individual  grower  to 
include  as  much  as  possible  of  his  fruit  in  the  higher  grades.  Further- 
more, he  is  as  a  rule  unable  to  obtain  trained  help  year  after  year,  or 
to  train  new  help  properly  because  he  cannot  furnish  continuous 
employment  for  the  entire  season,  and  because  he  is  not  a  specialist 
in  packing  methods.     As  a  result  of  these  conditions  the  quality  of 


10  UNIVERSITY    OF    CALIFORNIA — EXPERIMENT    STATION 

the  different  orchard  packs  varies  to  a  considerable  extent,  and  only 
when  particular  care  is  taken  by  all  of  the  members  is  it  possible 
equitably  to  pool  fruit  that  is  graded  and  packed  by  individual 
growers. 

General  Pools  for  Dried  Fruits  and  Nuts.— As  compared  with  the 
local  pools  of  the  fresh-fruit  association,  the  associations  handling 
almonds,  walnuts,  raisins,  peaches,  figs,  prunes,  and  apricots  operate 
on  the  basis  of  a  general  pool ;  that  is,  all  of  the  fruit  of  a  given  grade 
from  a  large  area  is  pooled  together.  If  grading  is  to  be  on  an 
equitable  basis  in  a  general  pool,  the  following  conditions  are  essential : 

(1)  The  character  of  the  fruit  must  be  such  that  its  quality  and 
size  can  be  determined  by  tests  that  yield  almost  identical  results  when 
applied  by  graders  who  are  not  in  constant  touch  with  each  other. 
When  the  pooling  area  includes  the  entire  producing  territory  grading 
is  generally  performed  in  a  relatively  large  number  of  receiving  plants 
separated  from  each  other  by  considerable  distances.  The  grader  is 
frequently  unacquainted  with  the  conditions  in  districts  other  than 
his  own,  and  consequently  his  grading  on  the  basis  of  quality,  in  the 
absence  of  mechanical  or  chemical  tests,  will  be  based  almost  entirely 
upon  a  comparison  of  the  products  raised  in  his  district  alone.  If 
the  average  quality  for  the  locality  is  relatively  high  there  will  be 
a  tendency  for  less  of  the  better  fruit  to  go  in  the  higher  grades,  and 
conversely,  if  the  average  quality  is  relatively  low  the  tendency  will 
be  for  more  of  the  better  fruit  to  go  into  the  higher  grades. 

(2)  The  grading  should  be  controlled  by  the  central  association. 
Equitable  grading  is  particularly  difficult  when  the  local  associations 
receive  and  grade  the  product  without  much  central  control.  Under 
the  present  organization  of  the  California  Almond  Growers  Exchange, 
grading  is  performed  by  local  warehousemen  employed  by  the  local 
associations,  and  too  often  their  grading  is  inaccurate  either  because 
of  lack  of  ability  or  because  of  conscious  or  unconscious  bias.  It  is 
perhaps  natural  for  a  resident  of  a  community,  whose  employment 
depends  upon  pleasing  the  local  growers,  to  be  lenient  in  grading  so 
as  to  put  into  the  higher  grades  as  much  as  possible  of  the  better 
product  of  his  locality.  Whatever  the  cause,  it  is  evident  that  local 
control  of  grading  is  unsatisfactory  in  a  general  pool.  On  one  occa- 
sion the  California  Almond  Growers  Exchange  made  advances  on  a 
lot  of  almonds  received  by  a  local  association  as  first  grade.  Later  it 
found  that  the  almonds  were  far  from  first  grade.  Under  such  con- 
ditions dissension  is  likely  to  arise.  The  growers  of  the  poor  almonds 
would  object  if  an  attempt  were  made  to  collect  the  over-payments  but 
the  other  members  would  be  dissatisfied  unless  the  collections  were  made. 


BlJL.  432]       SOME   ECONOMIC   PROBLEMS   INVOLVED   IN   POOLING   FRUIT      11 


EFFECT   OF   THE    LENGTH    OF   THE    POOLING    PERIOD    ON    THE 
MAINTENANCE    OF    A    PROPER    DIFFERENTIAL 

The  length  of  the  pooling  period  affects  the  maintenance  of  the 
proper  differential  between  members  when  there  is  a  variation  in  the 
time  during  which  the  fruit  can  be  harvested  because  of  differences 
in  individual  efficiency  or  differences  in  climatic  and  soil  conditions. 
In  actual  practice  the  length  of  a  pool  varies  from  a  car  pool  to  a 
seasonal  pool. 

Length  of  the  Pool  Important  Because  Members  Do  Not  Contribute 
Equally. — If  each  member  of  an  association  contributes  an  equal  per- 
centage of  his  entire  crop  to  each  pool,  it  will  make  no  difference 
whether  an  association  has  one  or  several  pools  during  the  season,  as 
far  as  the  amount  of  money  which  each  of  the  several  growers  will 
receive  is  concerned,  assuming  that  the  marketing  can  be  performed 
as  efficiently  under  one  length  of  pool  as  under  another.  However, 
there  are  a  number  of  reasons  why  members  of  an  association  do  not 
contribute  equal  percentages  of  their  crop  at  a  given  time.  Among 
the  more  important  are  the  following: 

(1)  Variations  in  time  of  maturity.  Within  a  given  pooling  area, 
some  growers,  because  of  superior  cultural  practices  or  because  of 
favorable  location  may  mature  their  crops  so  as  to  enable  them  to 
reach  the  market  at  times  when  prices  are  normally  high. 

(2)  Existence  of  climatic  differences.  Even  though  all  of  the 
fruit  in  a  given  pooling  area  matures  at  the  same  time,  there  may  be 
variation  in  the  climatic  conditions  necessitating  differences  in  the 
time  of  marketing.  Within  certain  limits  fruit  can  normally  be  held 
for  a  time  on  the  tree  or  on  the  farm  after  it  is  mature.  The  presence 
in  some  sections  of  early  frosts,  early  rains,  strong  winds,  or  intense 
heat  may  make  it  necessary,  however,  for  fruit  to  be  harvested  and 
sold  as  soon  as  it  is  sufficiently  mature. 

(3)  Diseases.  Again,  certain  diseases  may  cause  the  fruit  to  drop 
readily,  or  to  deteriorate  rapidly  if  left  on  the  tree,  thus  necessitating 
prompt  marketing. 

(4)  Pressure  of  other  farm  work.  It  may  often  be  more  profit- 
able, considering  the  farm  as  a  whole,  to  neglect  the  harvesting  of  a 
particular  fruit  at  its  proper  time  in  favor  of  more  important  work 
with  other  enterprises. 

Relation  of  Length  of  Pooling  Period  to  Seasonal  Variations  in 
Prices. — The  possibility  of  obtaining  additional  returns  from  market- 


12 


UNIVERSITY    OF    CALIFORNIA — EXPERIMENT    STATION 


ing  fruit  at  one  time  rather  than  at  another  depends  on  the  existence 
of  price  changes  which  tend  to  be  repeated  year  after  year  at  about 
the  same  part  of  the  season. 

The  prices  obtained  during  any  one  period  are,  of  course,  affected 
by  a  variety  of  causes  and  furnish  no  indication  of  what  may 
normally  be  expected  in  that  particular  period,  as  compared  with 
other  periods.  If  we  have  data  for  a  series  of  years,  however,  we  may 
obtain  a  typical  figure  for  each  period  of  the  season.  When  deter- 
mining the  proper  length  of  pooling  period  the  management  should 


160 
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Seasonal  Index  o-f  Bartlett  Pear   Prices  on  the 
/Vet*/  York   Auction,    19/7  -  I9Z4 . 

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1 

Z        3        4        &        6         7        8         9         /O        //        IZ       /3        14        /I 
Weeks    /'n   Shipping   Season 

s 

Fig.  1. — The  prices  of  pears  show  a  more  definite  tendency  to  follow  a  well 
denned  seasonal  movement  than  do  those  of  many  other  fresh  fruits. 

ordinarily  be  concerned  with  normal  price  changes  throughout  the 
season  as  measured  by  an  index  of  seasonal  variation,  rather  than 
with  the  price  changes  which  occur  during  any  particular  year. 

When  there  is  no  definite  seasonal  variation  in  prices,  long  period 
pools  are  entirely  fair  to  growers  marketing  their  fruit  at  various 
times  during  the  year,  even  though  prices  fluctuate  considerably.  On 
the  other  hand,  when  there  is  a  definite  seasonal  variation  in  the  prices 
of  a  commodity  which  matures  at  different  times,  assuming  that  the 
rate  of  marketing  depends  on  the  rate  of  maturity,  it  is  necessary  to 
provide  for  a  number  of  pools  during  the  season.  Just  how  many 
pools  are  necessary  will  depend  upon  the  extent  of  the  normal  price 
variations  during  the  season. 


BUL.  432]       SOME  ECONOMIC   PROBLEMS   INVOLVED   IN   POOLING   FRUIT      13 

The  curve  shown  in  figure  1  represents  the  seasonal  variations  in 
the  prices  of  Bartlett  pears  on  the  New  York  market.  It  is  readily 
seen  that  the  growers  who  are  able  to  get  the  bulk  of  their  pears  on 
the  market  in  the  first  few  weeks  of  the  season  will  ordinarily  obtain 
a  higher  price  than  if  their  fruit  were  sold  in  the  other  weeks.  For 
this  reason  it  is  evident  that  a  pool  extending  over  the  entire  shipping 
season  is  unfair,  and  that  a  number  of  short  pooling  periods  are  neces- 
sary. However,  certain  associations  handling  Bartlett  pears  may  well 
have  seasonal  pools.  Suppose,  for  instance,  that  the  shipments  from 
one  association  began  the  fourth  week  of  the  season  and  continued 
for  several  weeks.  Since  the  prices  received  during  every  week  of 
this  period  will  normally  be  somewhat  similar  or  more  or  less  irregu- 
lar, the  growers  who  ship  the  bulk  of  their  fruit  during  the  first 
part  of  this  period  will  not  be  penalized  by  having  their  product 
pooled  with  those  growers  who  ship  during  the  last  week.  On  the 
other  hand,  if  an  association's  shipments  began  the  first  week  of  the 
season  and  continued  until  the  fourth  week,  the  growers  who  shipped 
early  would  lose  money  if  the  association  had  a  seasonal  pool,  or  even 
a  four-week  pool. 


EQUITABLE    DISTRIBUTION    OF    THE    RISKS    OF    MARKETING 

CLASSES  OF  MARKET  RISKS 

The  risks  which  arise  in  the  marketing  of  farm  products  may  be 
classified  as  follows:  physical  risks,  economic  risks,  and  those  risks 
arising  out  of  the  human  element,  such  as  losses  resulting  from  dis- 
honesty— theft,  fraud,  and  the  raising  of  checks — from  bad  debts,  and 
from  incompetency. 

Physical  Bisks. — In  their  journey  from  producer  to  consumer  there 
is  constant  danger  that  the  quality  of  the  fruits  will  be  damaged. 
Fruits  may  freeze  in  transit  during  severe  weather,  or  in  the  summer 
they  may  deteriorate  because  of  faulty  refrigeration.  In  other  in- 
stances entire  carloads  of  fruit  are  lost  in  wrecks  or  by  fire.  Even 
when  the  product  is  not  injured  in  the  accident,  the  delay  may  result 
in  a  material  decline  in  its  quality. 

Economic  Risks. — The  chief  characteristic  of  economic  risks  is  that 
they  turn  on  price  movements.  In  general,  the  risks  caused  by  price 
fluctuations  are  due  to  unexpected  changes  in  demand  and  supply. 
Figure  2  shows  the  wide  daily  fluctuations  in  the  prices  received  for 
Elberta  peaches  on  the  New  York  market  in  1924.    This  figure  clearly 


14 


UNIVERSITY    OF    CALIFORNIA EXPERIMENT    STATION 


indicates  that  the  marketing  of  fruits  necessarily  involves  risks.  In- 
sofar as  market  risks  cannot  be  avoided  they  must  be  assumed  by 
someone,  and  the  cost  of  bearing  the  risk  must  be  paid.  If  marketing 
is  to  be  carried  on  most  efficiently,  effort  must  be  made  to  eliminate 
as  much  risks  as  possible,  and  to  minimize  the  effect  of  such  risks 
as  cannot  be  eliminated. 

Pooling  as  a  Method  of  Reducing  Bisks. — Fruit  is  not  now  handled 
on  organized  markets.  No  insurance  is  available  for  the  major  portion 
of  the  market  risks,  because  such  risks  are  "so  inseparably  connected 


180 

150 

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30 

Dof/y   Prices  oir~  Ca/i'^or-nia  E/beri-a   Peaches , 
New  York   Auction    Marked,   I9Z3 '. 

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- 

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- 

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'      Z       3      (3      7      8       9     IO     13     14     15     /6    /7     ZO    ZI     ZZ    Z3    Z4-    Z7   Z8 

Successive    Marke-h     Days 

Fig.  2. — Fluctuations  in  daily  prices  of  Elberta  peaches  give  some  idea  of  the 
importance  of  this  type  of  market  risk.  An  analysis  of  the  data  for  a  period  of 
years  shows  that  there  is  no  normal  seasonal  variation. 


with  the  general  management  of  the  business  that  an  insurance  com- 
pany which  undertook  them  would  really  make  itself  responsible  for 
the  business."6  Pooling,  therefore,  offers  the  best  means  by  which 
the  individual  grower  is  enabled  to  safely  insure  himself  against 
these  risks. 

Pooling  is  very  similar  to  insurance,  in  that  it  distributes  among 
many  persons  the  burden  of  losses  which  would  otherwise  fall  heavily 
upon  a  few.  The  losses  arising  from  market  risks  are  likely  to  occur 
to  any  one  of  a  large  number  of  shippers,  but  actually  they  will  fall 

6  Marshall,  Alfred.  Principles  of  economics,  p.  398.  Macmillan  Co.,  New  York 
City.     1920. 


BUL.  432]       SOME   ECONOMIC   PROBLEMS   INVOLVED  IN   POOLING   FRUIT      15 

upon  but  a  few  individuals  of  the  entire  group.  Pooling  does  not 
free  the  members  from  loss,  but  it  means  many  small  losses  which  are 
relatively  easy  to  bear,  in  place  of  a  few  large  losses  which  are  ex- 
tremely disastrous.  It  is  entirely  possible  that  every  shipment  of  an 
individual  grower  might  fall  on  a  low  market,  while  every  shipment 
of  his  neighbor  might  fall  on  a  high  market.  Or  again,  the  poor  fruit 
of  one  grower,  sold  on  a  'bare'  market,  might  bring  more  than  the 
good  fruit  of  another  sold  on  a  glutted  market.  Without  pooling,  a 
grower  who  raised  very  desirable  fruit  might  sustain  a  serious  loss 
for  the  season,  while  a  grower  who  raised  poorer  fruit  might  have  a 
profitable  year.  Pooling  distributes  the  risks  of  marketing  by  pro- 
viding that  each  contributor  to  the  pool  receive  the  same  price  per 
unit  for  the  same  grade  of  fruit.  The  loss  resulting  from  low  prices 
on  a  car  of  fruit,  because  of  conditions  over  which  the  grower  has  no 
control,  does  not  affect  the  owner  of  that  particular  fruit  except  as 
it  reduces  the  average  of  the  pool. 

Effective  Risk-taking  Requires  a  Large  Number  of  Units  in  the 
Pool. — If  pooling  is  to  be  an  effective  insurance  measure,  the  risk 
must  be  spread  over  a  large  number  of  units.  If  a  small  number  of 
cars  are  shipped  in  a  pool,  a  loss  on  any  one  car  will  affect  the  total 
returns  to  a  considerable  extent,  but  if  there  are  a  large  number  of 
cars,  the  effect  of  the  loss  of  a  single  car  will  be  materially  reduced. 

Assuming  that  the  yield  per  acre  and  the  acreage  per  square  mile 
of  territory  are  the  same,  the  number  of  cars  over  which  the  risks 
may  be  spread  depends  upon  two  factors:  (1)  the  amount  of  territory 
in  the  pool,  and  (2)  the  length  of  the  pooling  period.  As  far  as  the 
physical  and  moral  risks  are  concerned,  both  means  of  increasing  the 
number  of  units  in  a  pool  have  approximately  the  same  effectiveness.7 
But  with  regard  to  economic  risks,  it  makes  a  considerable  difference 
whether  the  number  of  units  are  increased  by  lengthening  the  pooling 
periods,  or  by  increasing  the  amount  of  the  territory  in  the  pool. 

Size  of  the  Pool  Important  in  Insuring  Against  Place  Risks. — The 
amount  of  the  territory  included  in  the  pool  is  of  particular  impor- 
tance in  insuring  against  place  risks,  those  due  to  variations  in  the 
prices  of  a  given  grade  of  fruit  in  different  markets  at  the  same 
time.  In  general,  however,  prices  in  one  market  cannot  get  very  far 
out  of  line  with  prices  in  other  markets  except  for  short  periods. 
There  are  several  reasons  for  this:  (1)  Market  news  service  in  the 
fruit  industry  is  highly  developed  and  is  constantly  being  improved. 


7  As  a  general  statement  this  is  correct,  but  for  isolated  instances  it  would  not 
hold  true.  For  example,  it  may  happen  that  in  all  of  the  main  markets  there  is 
a  severe  cold  spell  which  injures  all  of  the  fruit  coming  into  these  markets. 


16  UNIVERSITY   OF    CALIFORNIA — EXPERIMENT    STATION 

The  federal  and  state  governments  have  built  up  elaborate  systems 
of  market  reporting,  and  many  of  the  larger  cooperative  associations 
have  developed  their  own  services.  (2)  Diversion- in-transit  privileges 
enable  sales  managers  to  adjust  shipments  to  demand  in  the  various 
markets,  thus  keeping  them  in  fairly  close  balance.  (3)  Although 
most  of  the  fresh  fruits  are  of  a  perishable  nature,  present  methods 
of  refrigeration  make  it  possible  to  ship  them  from  one  market  to 
another  if  price  changes  make  that  desirable. 

Development  of  New  Markets  Involves  Place  Bisks. — The  risks 
involved  in  the  development  of  new  markets  are  generally  so  great 
that  it  is  necessary  to  include  a  large  number  of  units  in  the  pool 
in  order  to  escape  the  disastrous  effects  of  large  losses.  As  the  risk 
involved  in  the  development  of  new  markets  is  essentially  a  place 
risk,  an  increase  of  the  area  in  the  pool  is  necessary  to  provide  a 
sufficiently  large  number  of  units.  Because  of  rapidly  increasing 
production,  the  fruit  associations  in  California  are  being  forced  con- 
stantly to  seek  new  outlets  for  their  products.  Until  the  products 
are  established  in  the  new  markets,  a  price  lower  than  that  prevailing 
in  the  old  markets  is  usually  received,  and  often  the  price  is  so  low 
that  it  scarcely  pays  the  marketing  expense.  But  if  new  outlets  are 
to  be  developed  this  expensive  pioneer  work  must  be  done.  It  would 
be  unfair  to  ask  a  few  men  to  send  fruit  to  a  new  market,  with  the 
probability  of  a  considerable  sacrifice,  in  order  to  build  up  a  trade 
beneficial  to  the  entire  industry.  With  a  general  pool  the  losses  can 
be  distributed  among  all  of  the  members  of  the  association  instead 
of  falling  only  on  a  few.  It  is  not  necessary,  however,  that  an  asso- 
ciation handle  all  of  the  fruit  under  a  general  pool  in  order  to  dis- 
tribute equitably  the  losses  arising  from  the  development  of  new 
markets.  It  is  entirely  feasible  to  have  local  pools  for  the  established 
markets  and  a  general  pool  for  the  new  markets.  This  practice  is 
employed  by  the  California  Fruit  Growers  Exchange  with  regard  to 
its  foreign  sales. 

Length  of  the  Pooling  Period  Important  in  Insuring  Against  Time 
Risks. — The  economic  risks  arising  out  of  price  changes  over  periods 
of  time  are  more  important  than  place  risks  because  of  the  relatively 
wider  fluctuation  in  the  prices  of  a  given  product  over  a  period  of 
time  than  between  markets  at  a  given  time.  It  is  extremely  difficult,  if 
not  impossible,  effectively  to  control  the  fluctuations  in  the  prices  in 
a  given  market  for  an  entire  season. 

A  relatively  long  pooling  period  usually  furnishes  the  maximum 
of  insurance  against  this  sort  of  risk.  However,  growers  may  obtain 
this  same  effectiveness  of  insurance  with  short  pools  if  all  of  them 


BUL.  432]       SOME  ECONOMIC   PROBLEMS  INVOLVED   IN   POOLING   FRUIT      17 

contribute  equal  proportions  of  their  crops  to  each  pool.  On  the  other 
hand,  the  risks  of  the  individual  members  are  increased  if  the  propor- 
tions of  their  respective  deliveries  to  each  of  several  short  pools  vary 
from  that  of  the  association  as  a  whole. 

Taking  into  consideration  only  this  point — the  effect  of  the  length 
of  the  pooling  period  upon  the  equitable  distribution  of  risk — the 
pooling  period  should  be  at  least  long  enough  to  eliminate  the  short- 
time  fluctuations  in  price  caused  by  temporary  changes  in  demand 
and  supply,  such  as  rapid  changes  in  the  weather,  delays,  and  glutted 
or  'bare'  markets. 

EXPENSES   OF    POOLING 

The  problem  of  prorating  equitably  the  expenses  incurred  by  a 
cooperative  marketing  association  among  the  growers  is  frequently 
difficult.  This  difficulty  is  caused  mainly  by  two  conditions:  (1)  the 
costs  of  handling  different  units  of  a  given  grade  of  fruit  may  vary 
to  a  considerable  extent;  (2)  the  total  cost  of  handling  a  given  grade 
of  fruit  cannot  be  definitely  isolated  from  that  of  other  grades,  and 
consequently  the  indirect  costs  must  be  allocated  on  some  predeter- 
mined basis. 

VAEIATION  IN  THE  COSTS  OF  HANDLING  DIFFEEENT  UNITS 
OF  A  GIVEN  GEADE  OF  FEUIT 

In  this  regard  there  are  a  number  of  different  situations  in  Cali- 
fornia ;  a  local  pool  with  only  one  packing  house,  a  local  pool  with 
two  or  more  packing  houses,  a  general  pool  with  the  packing  houses 
owned  by  the  local  associations,  and  a  general  pool  with  the  packing 
houses  owned  by  the  central  association. 

Local  Pools  with  One  Packing  House. — When  the  pooling  area  is 
small  and  contains  only  one  packing  plant,  which  is  located  at  the 
common  shipping  point  of  the  members  of  the  pool,  the  problem  of 
prorating  equitably  the  costs  is  relatively  simple.  In  the  local  asso- 
ciations of  the  California  Fruit  Growers  Exchange  and  the  California 
Fruit  Exchange,  in  which  this  situation  exists,  each  grower  bears  the 
costs  of  hauling  his  fruit  from  his  ranch  to  the  packing  house.  Since 
all  of  the  fruit  is  handled  in  one  packing  house,  the  total  cost  of 
handling  a  given  grade  of  fruit  at  the  plant  can  be  distributed  fairly 
among  the  units  of  that  grade  on  the  basis  of  a  flat  rate.8  Thus  each 
grower  benefits  according  to  his  location. 


s  The  expressions  '  flat  rate '  and  '  flat  basis, '  when  used  in  this  way,  mean 
that  each  unit  of  the  product  bears  the  same  proportion  of  the  total  cost. 


18  UNIVERSITY    OF    CALIFORNIA EXPERIMENT    STATION 

Local  Pools  with  Several  Packing  Houses. — In  a  few  of  the  local 
associations  handling  fresh  fruits,  there  are  two  or  more  packing 
plants.  In  one  case,  for  example,  one  association  owns  and  operates 
three  packing  plants  in  one  pooling  area.  The  individual  grower 
bears  the  costs  of  hauling  his  fruit  from  his  ranch  to  the  packing 
house.  Each  grower  usually  delivers  his  fruit  to  the  packing  plant 
nearest  to  his  ranch.  The  costs  incurred  by  the  association  in  handling 
the  fruit  are  prorated  among  the  growers  on  a  flat  basis,  irrespective 
of  the  plant  to  which  the  fruit  is  delivered. 

General  Pool  with  Packing  Houses  Owned  by  Local  Associations. — 
In  the  California  Almond  Growers  Exchange,  for  example,  most  of 
the  almonds  are  handled  in  a  number  of  packing  plants  owned  and 
operated  by  the  local  associations,  although  all  of  the  almonds  of  a 
given  grade  are  pooled  together.  In  these  local  almond  associations 
each  grower  bears  the  costs  of  delivering  his  almonds  to  the  packing 
house,  and  the  cost  of  operating  a  particular  packing  house  is  charged 
against  only  those  almonds  which  are  handled  in  it. 

General  Pool  with  Packing  Houses  Owned  by  Central  Association. 
— In  associations  such  as  the  California  Prune  and  Apricot  Growers 
Association,  California  Peach  and  Fig  Growers  Association,  and  the 
Sun-Maid  Raisin  Growers  of  California,  the  pooling  area  extends 
over  much  of  the  state,  and  the  packing  plants,  located  at  different 
points,  are  owned  and  operated  by  the  central  organization.  The 
California  Prune  and  Apricot  Growers  Association,  for  example, 
operates  twenty-six  packing  plants  and  four  receiving  stations,  and 
has  contracts  with  five  packers  to  receive  and  pack  its  members'  fruit. 
In  addition,  the  Association  provides  shipping  facilities  at  a  number 
of  places  distant  from  its  receiving  stations  or  packing  plants.  That 
part  of  the  fruit  which  is  received  at  places  other  than  the  packing 
plants  must  be  shipped  to  these  plants  for  processing  and  packaging. 
The  Crop  Marketing  Agreement  of  the  Association  provides  that  the 
Association  pay  the  cost  of  transportation  from  the  common  shipping 
point  of  the  grower  to  the  packing  plant.  In  this  Association,  there- 
fore, each  member  bears  the  costs  of  hauling  his  fruit  from  his  ranch 
to  the  local  shipping  point.  All  costs  thereafter  are  paid  by  the 
association,  and  the  total  cost  of  handling  each  grade  of  fruit  is 
prorated  to  the  growers  on  the  basis  of  the  number  of  tons  delivered. 
Thus,  with  the  exception  of  local  hauling,  each  member  in  the  Cali- 
fornia Prune  and  Apricot  Growers  Association  pays  an  equal  cost 
per  ton  for  a  given  grade  of  fruit. 

The  costs  incurred  by  the  association  in  handling  each  ton  of  a 
given  grade  of  fruit,  however,  are  unequal.     For  example,  when  a 


BUL.   432]       SOME   ECONOMIC   PROBLEMS   INVOLVED   IN   POOLING   FRUIT      19 

grower  in  Santa  Clara  County  delivers  his  fruit  to  a  packing  house 
in  San  Jose  the  association  has  no  transportation  charge  to  pay, 
assuming  that  the  prunes  are  sold  f.o.b.  packing  house.9  But  when 
a  grower  in  San  Joaquin  County  delivers  his  prunes  to  Acampo,  the 
association  pays  the  transportation  costs  from  there  to  San  Jose.10 
Again,  the  costs  of  handling  the  fruit  are  greater  in  certain  packing 
houses  than  in  others.  Variations  in  costs  may  be  caused  by  differ- 
ences in  the  volume  of  fruit  handled,  differences  in  the  efficiency  of 
the  packing  house  superintendents,  differences  in  the  layouts  of  the 
plants,  etc. 

The  foregoing  illustration  indicates  an  important  problem  in  the 
pooling  of  expenses  with  which  those  associations  having  a  general 
pool  are  concerned,  namely,  shall  the  costs  of  transportation  from 
each  grower's  nearest  shipping  station  to  the  packing  plant,  and  the 
costs  of  handling  the  fruit  in  each  of  the  several  packing  plants  be 
assessed  alike  per  physical  unit,  or  shall  each  unit  of  fruit  bear  the 
costs  that  are  separately  attributable  to  it? 

Pooling  Transportation  Costs. — The  first  part  of  this  problem  is 
becoming  increasingly  important  among  the  dried-fruit  associations 
because  of  the  tendency  toward  consolidation  of  packing  plants  and 
receiving  stations.  To  what  extent  will  consolidation  be  carried  if 
each  member  bears  the  costs  of  transporting  his  own  fruit  to  the  pack- 
ing plant  ?  Consolidation  will  certainly  be  beneficial  to  those  growers 
located  near  the  central  packing  plant,  assuming  that  consolidation 
will  result  in  a  reduction  in  the  costs  of  receiving,  grading,  processing, 
and  packaging.  Those  growers  located  at  a  distance,  however,  might 
receive  a  lower  net  return  for  their  fruit,  even  though  the  association 
returned  them  a  higher  price,  because  out  of  this  increased  return 
would  come  the  additional  cost  of  hauling  to  a  more  distant  plant; 
and  if  the  grower's  ranch  were  far  from  the  packing  house,  his  addi- 
tional cost  might  be  more  than  the  increased  price  received.  Con- 
sequently, it  might  be  more  profitable  for  him  and  his  neighbors  to 
build  a  packing  house  in  their  immediate  vicinity,  even  though  the 
cost  of  operating  it  were  higher  than  the  amount  they  were  charged 
at  the  central  plant. 


9  Equality  Brand  is  quoted  f.o.b.  Association's  packing  house;  Sun-Sweet 
Brand  is  quoted  f.o.b.  San  Francisco  dock.  (Anonymous.  New  crop  prune  selling 
prices.     Sunsweet  Standard,  9  (3)  :   6.     1925.) 

io  The  Association  has  no  packing  plants  in  Sacramento,  San  Joaquin,  Stanis- 
laus, Merced,  and  adjacent  counties,  and,  therefore,  the  fruit  of  its  members 
located  in  these  counties  is  shipped  to  a  packing  plant  in  another  section,  usually 
to  San  Jose.  (Anonymous.  First  advance  on  1925  prune  crop.  Sunsweet 
Standard,  9  (3) :  1.     1925.) 


22  UNIVERSITY    OF    CALIFORNIA — EXPERIMENT    STATION 


ALLOCATING  INDIRECT  COSTS 

Difficulty  of  Isolating  the  Cost  of  a  Particular  Grade  of  Fruit. — 
The  total  cost  of  handling  any  one  grade  of  fruit  cannot  be  definitely 
isolated  from  that  of  other  grades  handled  by  the  aid,  in  whole  or 
in  part,  of  the  same  business  ability  and  organization,  the  same  labor, 
and  the  same  machinery  and  equipment.  The  direct  costs,  such  as 
the  costs  of  packing  material  and  labor  that  could  be  dispensed  with 
if  this  particular  grade  of  fruit  were  not  handled,  can  indeed  be 
determined,  "because  the  materials  and  services  they  represent  are 
physically  identified  with  some  unit  of  product  in  a  visible  and 
unmistakable  fashion."12  The  Association's  minimum  charge  on  a 
given  grade  of  fruit  must  be  at  least  sufficient  to  cover  the  direct 
costs  of  that  particular  fruit,  if  the  fruit  is  to  be  handled  at  all.13 
The  situation  is  somewhat  different  with  regard  to  the  indirect  costs, 
such  as  salaries  and  expenses  of  the  administrative,  sales,  and  field 
departments;  interest  on  capital;  depreciation  on  buildings  and 
machinery;  etc.  The  total  costs,  both  direct  and  indirect,  must  of 
course  be  borne  by  all  of  the  growers.  The  crop  contracts  usually 
provide  that  the  proceeds  from  the  sale  of  the  products,  less  each 
grower's  pro  rata  share  of  all  expenses,  shall  be  paid  to  the  growers 
according  to  the  quantities  and  grades  of  fruit  delivered.  The  difficult 
problem  is  to  determine  just  what  is  each  grower's  pro  rata  share 
of  the  indirect  expenses  of  the  organization. 

Methods  Used  in  Allocating  Indirect  Costs. — The  methods  used 
by  the  associations  in  California  in  allocating  the  indirect  costs  among 
the  various  grades  of  fruit  vary  to  a  considerable  extent.  In  general, 
it  may  be  said  that  the  indirect  costs  of  handling  a  given  kind  of  fruit 
are  prorated  among  the  various  grades,  either  on  the  basis  of  a  flat 
rate  per  unit,  on  the  basis  of  sales  value,  or  on  a  combination  of  the 
two.  The  first  method — that  of  allocating  the  indirect  costs  on  the 
basis  of  a  flat  rate  per  unit — is  followed  by  the  California  Fruit 
Growers  Exchange.  The  indirect  costs  incurred  in  handling  oranges, 
for  example,  are  charged  to  the  growers  on  the  basis  of  a  flat  rate 


12  Clark,  J.  M.  Economics  of  overhead  costs,  p.  116.  The  University  of 
Chicago  Press,  Chicago.     1923. 

I  b  Some  associations  have  handled  fruit  for  a  time  at  a  loss,  but  if  their 
charges  were  consistently  lower  than  the  direct  costs  involved,  they  have  either 
increased  their  charges  or  discontinued  the  handling  of  the  fruit.  For  example, 
Malagas,  Feherzagoes,  and  dried  wine  grapes  of  every  variety  were  omitted  from 
the  VJ23  Crop  Contract  of  the  Sun-Maid  Raisin  Growers  of  California  because  the 
handling  of  them  usually  entailed  a  loss  on  the  part  of  the  association.  (Anony- 
mous. Sound  contract  is  basis  of  association.  The  Associated  Grower,  5(4):  8. 
1923.) 


BUL.   432]       SOME  ECONOMIC   PROBLEMS   INVOLVED   IN   POOLING  FRUIT      23 

per  box,  irrespective  of  the  quality  and  size  of  the  oranges.  Thus 
low-quality  fruit  is  charged  the  same  amount  per  box  as  high-quality 
fruit.  The  California  Fruit  Exchange  allocates  its  costs  on  the  basis 
of  sales  value.  It  deducts  7  per  cent  of  the  gross  receipts  as  full 
compensation  for  its  services.  Thus  the  high-quality  fruit  bears  a 
larger  charge  per  box  than  the  poor-quality  fruit.  The  California 
Prune  and  Apricot  Growers  Association  allocates  part  of  its  indirect 
costs  on  the  basis  of  a  flat  rate  per  ton,  and  part  on  the  basis  of  sales 
value.  For  instance,  each  ton  of  prunes  is  charged  the  same  amount 
for  packaging  and  processing;  but  the  administrative  and  sales  ex- 
penses are  pro-rated  on  the  basis  of  sales  value. 

Allocating  Indirect  Costs  among  Different  Kinds  of  Fruit. — Many 
of  the  fruit  associations  in  California  handle  more  than  one  kind  of 
fruit,  and  their  problem  of  allocating  the  indirect  expenses  is,  there- 
fore, twofold :  first,  upon  what  basis  are  the  indirect  costs  to  be  pro- 
rated among  each  of  the  different  kinds  of  fruit;  and  secondly,  upon 
what  basis  are  the  indirect  costs  chargeable  to  a  given  kind  of  fruit 
to  be  prorated  among  the  various  grades?  The  second  part  of  this 
problem  has  already  been  discussed.  We  have  now  to  consider  the 
first  part. 

In  the  California  Prune  and  Apricot  Growers  Association,  for 
example,  which  handles  prunes,  apricots,  and  apricot  pits,  the  indirect 
costs  are  allocated  as  follows :  In  those  plants  which  are  used  entirely 
for  one  commodity,  the  overhead  expenses  are  charged  to  that  com- 
modity :  but  when  the  plant  is  used  for,  say,  prunes  and  apricots  and 
apricot  pits,  the  overhead  expenses  are  prorated  among  the  three  com- 
modities on  the  basis  of  the  direct  labor  cost  of  handling  them.  The 
cost  of  administration  of  the  Growers  Packing  and  Warehousing 
Association  is  prorated  among  the  commodities  on  the  basis  of  the 
total  plant  costs.  That  portion  of  the  total  overhead  cost  allocated 
to  prunes,  for  example,  is  then  prorated  among  the  various  grades  on 
a  tonnage  basis,  as  has  been  explained.  The  administrative  and  sell- 
ing expenses  are  prorated  among  the  three  commodities  on  the  basis 
of  their  sales  value. 

In  the  local  citrus-packing  houses  the  indirect  expenses  are  gen- 
erally prorated  between  the  different  kinds  of  fruit  handled  on  the 
basis  of  the  total  direct  costs.  In  the  California  Fruit  Growers  Ex- 
change, the  expenses  of  the  central  exchange  and  of  most  of  the 
district  exchanges  are  divided  between  oranges,  lemons,  and  grape- 
fruit on  a  weight  basis.  In  the  California  Fruit  Exchange,  however, 
the  expenses  are  prorated  on  the  basis  of  sales  value. 


24  UNIVERSITY    OF    CALIFORNIA — EXPERIMENT    STATION 

Advertising. — The  cost  of  advertising  is  one  of  the  most  difficult 
expenses  to  prorate  equitably.  The  associations  which  handle  several 
kinds  of  fruit  usually  advertise  all  of  them  under  one  brand;  for 
example,  in  the  California  Prune  and  Apricot  Growers  Association, 
both  prunes  and  apricots  are  advertised  under  the  "Sunsweet"  brand. 
This  association  charges  prunes,  for  instance,  with  only  that  portion 
of  the  cost  that  is  actually  expended  on  advertising  prunes.  The 
California  Fruit  Exchange,  which  handles  many  kinds  of  deciduous 
fruits  under  the  Blue  Anchor  brand,  prorates  the  cost  of  such  adver- 
tising as  is  done  to  the  various  fruits  on  the  basis  of  sales  value. 

After  each  kind  of  fruit  is  assigned  its  prorata  share  of  the  total 
advertising  expense,  the  problem  presents  itself  of  determining  how 
the  expense  assigned  to  a  given  kind  of  fruit  shall  be  distributed 
among  the  various  grades.  The  first  question  to  be  decided  is  whether 
to  charge  this  cost  to  only  those  grades  advertised  or  to  charge  it  to  all 
the  grades.  The  latter  method  is  followed  by  most  of  the  associations 
in  California,  such  as  the  California  Fruit  Growers  Exchange,  the 
California  Fruit  Exchange,  the  California  Almond  Growers  Exchange 
and  the  California  Prune  and  Apricot  Growers  Association.  Their 
main  reason  for  doing  this  is  that  they  believe  that  advertising  is  bene- 
ficial to  the  lower  quality  fruit  as  well  as  to  the  higher  quality  fruit. 
Their  argument  is  that  advertising  results  in  an  increase  in  the  de- 
mand for  prunes,  nearly  as  much  as  it  does  for  Sunsweet  prunes,  for 
instance.  Furthermore,  it  is  claimed  that  an  increase  in  the  con- 
sumption of  Sunsweet  prunes  will  result  in  an  increased  consumption 
of  prunes  of  lower  quality.  On  the  other  hand,  the  Sun-Maid  Raisin 
Growers  of  California  charge  the  advertising  expense  to  only  those 
raisins  advertised.14  The  second  question  pertains  to  the  basis  upon 
which  the  advertising  expense  is  to  be  distributed  among  the  various 
grades  to  which  it  is  charged.  The  California  Fruit  Growers  Ex- 
change and  California  Almond  Exchange  distribute  this  expense  on 
a  flat  basis;  the  California  Prune  and  Apricot  Association  and  the 
California  Fruit  Exchange  on  the  basis  of  sales  value. 

How  Should  Costs  Be  Allocated? — The  foregoing  discussion  indi- 
cates that  no  single  method  of  distributing  the  costs  is  applicable  to 
all  associations.  The  general  principle  is  that  the  direct  expenses 
should  be  charged  to  the  particular  grade  of  each  kind  of  fruit  for 
which  they  were  incurred,  and  that  the  indirect  expenses  should  be 
allocated  in  a  uniform  fashion  on  some  basis  that  seems  reasonable 
and  appropriate.    According  to  Clark,15  ''There  are  four  logical  bases 

14  Anonymous.  New  advertising  increases  sales  at  less  expense.  Sun-Maid 
Business,  Dec.  15,  1924,  p.  8. 


BUL.  432]       SOME   ECONOMIC   PROBLEMS   INVOLVED   IN   POOLING   FRUIT      25 

on  which  overhead  costs  may  be  apportioned.  These  are:  (1)  ability 
to  pay  .  .  .  . ,  (2)  causal  responsibility  .  .  .  . ,  (3)  benefit  or  use; 
(4)  stimulus  to  improved  utilization."  The  indirect  expenses  incurred 
in  receiving,  grading,  processing,  and  packing  are  generally  allocated 
on  the  basis  of  causal  responsibility.  This  method  involves  consider- 
able dependence  upon  the  "operator's  judgment."  "Here  the  ques- 
tion is  usually  one  of  finding  something  which  controls  the  amount 
of  these  indirect  costs,  and  the  test  would  be  that  they  would  vary 

more  nearly  with  this  one  variable  than  with  any  other Any 

selection  that  may  be  made  is  in  the  nature  of  a  compromise,  since 
some  expenses  vary  more  directly  with  labor  time,  others  with  direct 
expenses,  others  with  machine  hours,  and  so  on."16  Since  any  grade 
of  a  given  fruit  is  usually  equally  responsible  for  the  overhead  costs 
of  a  packing  plant  as  any  other  grade,  the  practice  is  to  prorate  the 
costs  on  the  basis  of  a  flat  rate  per  physical  unit.  This  same  method 
is  followed  by  some  associations  in  allocating  the  indirect  costs  of 
selling  and  administration.  Other  associations  use  the  basis  of  ability 
to  pay  or  of  benefit  received.  For  example,  the  method  of  allocating 
the  costs  of  administration  on  the  basis  of  sales  value  seems  to  rest 
solely  on  the  ability  to  pay.  This  method  of  allocating  the  costs  of 
selling,  however,  may  rest  on  both  the  ability  to  pay  and  the  benefit 
received.  For  instance,  it  may  be  contended  that  a  unit  of  the  better 
grades  of  fruit  can  pay  more  of  the  indirect  expenses  than  a  unit  of 
a  poorer  grade,  or  that  a  unit  of  the  better  grade  fruit  receives  more 
benefit  from  an  increase  in  the  demand  resulting  from  advertising  and 
sales  promotion. 

The  tendency,  resulting  from  the  practice  of  prorating  the  indirect 
expenses  of  the  association  on  the  basis  of  a  flat  rate  per  physical 
unit  as  compared  with  the  basis  of  sales  value,  is  to  encourage  the 
production  of  high-quality  fruit.  When  the  indirect  expenses  are 
prorated  on  the  basis  of  sales  value,  a  pound  or  package  of  the  high- 
grade  fruit  is  charged  more  than  a  similar  unit  of  the  lower-grade 
fruit.  To  the  extent  that  this  narrows  the  price  differential  between 
the  grades  to  the  grower,  it  discourages  the  production  of  high-quality 
fruit.  From  the  standpoint  of  the  industry  as  a  whole,  the  produc- 
tion of  high-quality  fruit  is  desirable,  and  this  is  perhaps  the  most 
important  justification  for  charging  the  indirect  expenses  of  an  asso- 
ciation on  the  basis  of  a  flat  rate. 


is  Clark,  J.  M.    Economics  of  overhead  costs,  p.  32.    The  University  of  Chicago 
Press,  Chicago.     1923. 
is  Op.  tit.,  p.  231. 


26  UNIVERSITY    OF    CALIFORNIA — EXPERIMENT    STATION 


RELATION   OF  THE    POOLING    PLAN   TO   ORDERLY    MARKETING 

To  obtain  the  most  effective  operation  of  the  association  it  is  neces- 
sary that  the  management  exercise  a  considerable  degree  of  control 
over  the  products  of  its  members  in  order  to  promote  orderly  market- 
ing, and  to  develop  new  markets. 

Orderly  Marketing. — In  order  effectively  to  distribute  the  crop  as 
to  time  and  place,  and  thereby  obtain  the  largest  net  returns,  it  is 
essential  that  the  control  of  the  product  be  transferred  from  the 
members  of  a  cooperative  marketing  association  to  the  management. 
The  individual  grower  has  frequently  neither  the  time  nor  the  ability, 
even  though  the  association  provides  him  with  the  necessary  informa- 
tion, properly  to  distribute  his  product.  With  perishable  fruit  crops 
he  is  especially  busy  with  harvesting  at  just  the  time  the  marketing 
of  it  requires  particular  attention.  With  other  crops  the  pressure  of 
other  farm  work  requires  his  attention  at  the  time  it  is  ordinarily 
being  marketed.17 

Ordinarily  the  output  of  a  farm  is  so  small  that  the  individual 
grower  cannot  give  much  time  to  marketing.  When,  however,  the 
products  of  many  farms  are  considered,  it  may  be  well  worth  while 
to  build  up  an  organization  that  will  devote  all  of  its  time  to  this 
work,  and  be  sufficiently  large  to  permit  a  considerable  degree  of 
specialization.  Furthermore,  a  good  farmer  is  frequently  a  poor 
salesman  because  the  management  of  a  farm  requires  different  abili- 
ties than  the  marketing  of  the  products  produced  on  it. 

Experience  has  shown  that  when  individual  growers  determine 
the  volume  of  products  to  be  marketed  at  a  given  time  and  place, 
markets  are  likely  to  become  disorganized  and  violent  price  fluctua- 
tions are  likely  to  occur.  For  this  reason  the  practice  of  delegating 
the  control  of  the  fruit  by  the  members  to  the  management  has  become 
fairly  well  established  among  the  associations  in  California.  For 
example,  in  the  California  Fruit  Growers  Exchange,  "The  line  of 
development  has  been  increasingly  for  the  grower  to  delegate  author- 
ity as  to  the  time  of  picking  to  the  local  association,  for  the  local 
association  to  delegate  all  authority  as  to  place  of  sale  and  price  of 
the  product  to  the  district  exchange,  in  order  that  the  latter  may 
cooperate  more  effectively  with  the  central  exchange  in  securing  more 

17  Hibbard  points  out  that  "few  farms  are  so  organized  as  to  leave  any  con- 
siderable part  of  the  farmer 's  time  free  for  the  consideration  and  work  of  market- 
ing. "  (Hibbard,  B.  H.  Marketing  agricultural  products,  p.  287.  D.  Appleton 
&  Co.,  New  York  City.     1921.) 


BUL.  432]       SOME  ECONOMIC   PROBLEMS   INVOLVED   IN   POOLING   FRUIT      27 

uniform  distribution  throughout  the  year  and  throughout  the  area 
of  possible  consumption."18  This  delegation  of  authority  has  taken 
place  simply  because  it  has  been  their  experience  that  the  district 
exchange  manager  can  get  a  higher  price  for  their  fruit  than  they  can 
themselves ;  for  as  a  rule,  the  district  exchange  manager  is  well  trained 
for  the  work  of  directing  sales,  and  is  able  to  spend  all  of  his  time 
at  it. 

Development  of  New  Markets. — Because  of  the  rapidly  increasing 
production  the  cooperative  fruit-marketing  associations  in  California 
are  forced  to  develop  new  markets,  both  at  home  and  abroad.  This 
work  demands  a  high  degree  of  skill  and  involves  considerable  ex- 
pense. Therefore,  the  decision  of  whether  to  develop  a  particular 
market  or  not  cannot  safely  be  left  to  the  individual  growers,  particu- 
larly when  the  return  from  the  sale  of  fruit  in  a  new  market  is  apt 
to  be  lower  than  that  received  in  an  established  market. 

Pooling  the  Most  Satisfactory  Method  of  Transferring  Control. — 
Pooling  is  generally  the  most  satisfactory  method  of  transferring  the 
control  of  the  product  to  the  management  because  under  a  pooling 
system  the  grower  is  not  especially  interested  in  the  market  to  which 
his  particular  product  goes  nor  the  price  it  brings;  what  he  wants 
is  the  highest  possible  average  price  for  the  pool,  because  he  knows 
that  in  this  way  he  will  receive  the  highest  return.  Without  pooling, 
each  grower  would  be  vitally  interested  in  the  price  his  own  fruit 
brought.  Consequently  he  would  be  more  apt  to  insist  on  having 
a  considerable  voice  in  deciding  the  market  to  which  his  fruit  was  to 
be  sent  and  the  time  of  shipment.  The  result  would  be  a  chaotic 
market  condition ;  too  much  fruit  would  be  shipped  early  or  too  much 
would  be  shipped  late;  some  markets  would  be  glutted  and  others 
would  have  an  insufficient  supply. 

However,  the  different  methods  of  pooling  vary  greatly  in  the 
extent  to  which  they  give  control  to  the  management.  It  is,  therefore, 
necessary  to  analyze  the  effects  of  the  area  in  the  pool  and  the  length 
of  the  pooling  period  upon  the  extent  of  this  control. 

Effect  of  the  Area  in  Pools  upon  the  Control  of  Distribution. — The 
amount  of  territory  included  in  the  pool  exerts  its  main  influence 
upon  the  extent  to  which  growers  are  willing  to  delegate  the  control 
of  the  distribution  of  their  products  among  the  various  markets  to 
the  management.  When  pooling  is  on  a  local  basis,  the  effectiveness 
with  which  the  sales  agency  can  distribute  the  product  among  the 


!8  Camp,  W.  E.     The  organization  of  agriculture  in  relation  to  the  problem  of 
price  stabilization.    Journal  of  Political  Economy,  32:  289. 


28  UNIVERSITY    OF    CALIFORNIA EXPERIMENT    STATION 

various  markets  may  be  limited,  because  it  is  to  the  interest  of  the 
local  association  to  obtain  the  highest  return  for  its  products,  irre- 
spective of  the  returns  obtained  by  other  locals.  Consequently,  a 
local  association  may  demand  that  its  particular  product  be  sent  to 
a  certain  market,  believing  that  it  will  obtain  a  higher  price  there, 
even  though  such  action  is  detrimental  to  the  industry  as  a  whole. 
Unless,  however,  a  majority  of  the  locals  regularly  exercise  their 
rights  to  determine  the  place  of  sale  of  their  products,  the  existence 
of  local  pooling  is  not  a  serious  handicap  to  effective  place  distri- 
bution. Orderly  marketing  depends  upon  the  proper  distribution  of 
the  entire  crop,  of  a  given  grade  to  be  sold  at  a  given  time,  among 
the  various  markets,  not  necessarily  upon  the  shipment  of  a*  fruit 
from  a  particular  local  association  to  a  particular  market.  Conse- 
quently, the  request  of  any  given  local  that  its  fruit  be  shipped  to  a 
certain  market  may  be  granted  without  disrupting  the  orderly  flow 
of  the  crop  as  a  whole,  provided,  of  course,  that  many  other  locals 
do  not  name  the  same  market  in  their  requests.  When  only  a  few 
locals  exercise  this  privilege,  they  are  almost  sure  to  be  the  chief  losers 
if  their  actions  result  in  an  over-supplied  market,  because  the  over- 
supply  for  which  they  were  responsible  will  result  in  a  lower  price 
being  paid  for  their  goods.  Experience  has  taught  the  local  associa- 
tions that  their  own  best  interests  are  advanced  by  delegating  the 
control  of  the  distribution  of  their  product  to  the  management.  It 
is  for  this  reason  that  both  the  California  Fruit  Growers  Exchange 
and  the  California  Fruit  Exchange,  in  which  pooling  is  on  a  local 
basis,  are  able  effectively  to  distribute  the  products  they  handle  among 
the  various  markets. 

Effect  of  the  Length  of  the  Pooling  Period  upon  the  Control  of 
Distribution. — The  length  of  the  pooling  period  influences  the  extent 
to  which  growers  are  willing  to  delegate  the  control  of  the  distri- 
bution of  their  product  over  a  period  of  time  to  the  management. 
When  the  pooling  period  is  short  the  natural  tendency  is  for  the 
members  to  try  to  regulate  their  deliveries  of  fruit  according  to  the 
expected  fluctuations  in  the  market  prices,  attempting  to  have  the 
larger  proportion  of  their  product  reach  the  market  when  the  price 
is  high.  Carried  to  its  logical  conclusion  this  would  mean  that  many 
growers  with  inadequate  knowledge  and  acting  independently  would 
control  the  distribution  of  the  product  over  a  period  of  time,  instead 
of  a  well-informed  sales  agency.  On  the  other  hand,  the  seasonal  pool 
may  be  equally  disadvantageous  in  this  regard.  If  the  grower  knows 
that  he  will  receive  the  average  price  for  the  season  irrespective  of 
the  time  his  fruit  is  sold,  he  will  regulate  his  deliveries  to  the  associa- 


BUL.  432]       SOME  ECONOMIC   PROBLEMS  INVOLVED   IN    POOLING   FRUIT      29 

tion  according  to  his  own  best  interests,  which  may  or  may  not  be  to 
the  best  interests  of  the  association. 

At  the  first  glance  it  might  appear  that  in  a  seasonal  pool  the 
growers  would  willingly  delegate  the  entire  control  of  their  fruit  to 
the  management.  In  such  a  pool,  the  individual  grower  does  not 
benefit  from  having  his  particular  fruit  fall  on  a  high  market,  except 
as  it  increases  the  average  return  for  all.  On  the  other  hand,  he  is 
greatly  interested  in  having  the  association  obtain  the  highest  average 
price  for  all  of  the  fruit.  Consequently,  it  would  seem  that  if  the 
average  price  can  be  raised  by  allowing  the  management  to  distribute 
the  fruit  in  such  a  way  as  to  supply  the  most  urgent  demands,  the 
growers  would  be  encouraged  to  deliver  as  little  or  as  much  fruit  as 
is  wanted. 

A  grower's  returns,  however,  depend  not  only  upon  the  price 
received,  but  also  upon  the  amount  of  each  grade  contributed;  and 
he  naturally  desires  to  have  as  large  an  amount  as  possible  in  the 
highest  grades.  Particularly  in  the  case  of  some  fruits,  each  grower 
wants  to  get  his  fruit  off  as  soon  as  it  is  mature.  If  it  continues  to 
hang  on  the  tree  after  that  time  he  must  assume  such  risks  as  drop- 
ping, freezing,  bruises  caused  by  winds,  deterioration  in  quality,  etc. 

The  difficulty  in  controlling  the  delivery  of  fruit  is  accentuated  when 
the  conditions  in  the  pool  vary  widely.19  For  example,  the  oranges  in 
the  groves  of  a  few  members  may  drop  easily,  causing  them  severe 
loss  unless  they  can  pick  a  large  proportion  of  their  crop  early.  But 
if  the  management  allows  them  this  privilege  and  refuses  to  allow  the 
other  members  the  same  right,  friction  and  discord  are  apt  to  arise. 
On  the  other  hand,  if  all  are  allowed  to  deliver  the  bulk  of  their 
oranges  early,  the  packing  house  facilities  would  be  overcrowded,  and 
the  association  would  be  forced  to  put  an  unduly  large  amount  of  its 
oranges  on  the  market  at  one  time. 

A  number  of  short  pools  in  the  place  of  a  seasonal  pool  offers  a 
means  of  lessening  this  particular  trouble.  Suppose,  for  example, 
that  the  management  of  an  association  having  monthly  pools,  decides 
that  it  is  advisable  to  market  20  per  cent  of  its  oranges  during  Febru- 
ary. It  is  immaterial  to  them  from  what  groves  the  fruit  comes  as 
long  as  the  required  amount  of  the  total  association's  crop  is  delivered. 
While  some  growers  may  want  to  deliver  40  per  cent  of  their  crop  to 
this  pool,  others  may  be  willing  to  delay  picking  their  oranges  in 
anticipation  of  a  higher  price  in  a  later  pool.  Within  limits  the  heavy 
deliveries  of  some  members  may  be  offset  by  the  light  deliveries  of 

!9  Here  the  area  in  the  pool  affects  distribution  over  a  period  of  time. 


30  UNIVERSITY    OF    CALIFORNIA — EXPERIMENT    STATION 

others,  so  that  the  required  percentage  of  the  total  crop  of  the  associa- 
tion is  moved  at  the  most  advantageous  time.  Noav  if  the  required 
amount  of  fruit  is  delivered  during  the  pool,  there  seems  to  be  no  good 
reason  why  one  member  should  not  deliver  more  to  the  pool  and 
another  member  less  if  they  so  desire.  The  practical  difficulty  relates 
to  the  balancing  of  those  who  want  to  ship  less  against  those  who  want 
to  ship  more  so  as  to  maintain  the  desired  amount.  If  it  is  agreed 
that  the  association  should  control  the  time  and  amount  of  total 
delivery,  the  problem  may  be  solved  by  designating  certain  limits 
which  no  member  may  exceed.  At  the  opening  of  the  pool,  after  the 
management  had  decided  upon  the  amount  that  should  be  shipped,  the 
members  could  be  asked  to  express  their  desires  regarding  the  amount 
they  want  to  deliver.  If  the  total  which  the  members  wish  to  ship  is 
more  or  less  than  the  determined  amount,  those  members  who  exceed 
or  come  under  the  allotted  percentage  may  be  asked  to  decrease  or 
increase  their  deliveries  accordingly. 

But  the  very  fact  that  there  is  an  opportunity  to  get  a  higher 
return  from  one  pool  than  from  another  encourages  the  members  to 
speculate.  Each  grower  tries  to  predict  the  times  when  prices  are 
high,  and  to  ship  a  large  portion  of  his  crop  then.  To  speculate  freely 
one  must  control  his  own  product,  so  in  this  respect  the  short  pool 
takes  the  essential  control  out  of  the  hands  of  the  management.  Fur- 
thermore, if  it  appears  that  the  average  return  for  a  particular  pool 
is  going  to  be  high,  there  will  be  a  general  rush  on  the  part  of  the 
growers  the  last  few  days  to  get  a  large  proportion  of  their  crop  in 
that  pool. 

In  addition  to  wanting  to  get  a  high  price  and  a  large  proportion 
of  his  crop  in  the  best  grades,  the  grower  is  interested  in  the  costs 
involved,  and  one  of  the  costs  which  he  must  be  concerned  with  is 
'opportunity  costs.'20  The  raising  of  a  particular  kind  of  fruit,  for 
example,  is  often  only  one  of  the  major  enterprises  on  a  farm.  The 
farmer's  chief  interest  is  to  obtain  the  highest  net  return  from  his 
farm  as  a  whole,  and  not  necessarily  to  obtain  the  highest  possible 
return  for  any  single  enterprise.  Consequently  it  may  be  more  profit- 
able for  a  member  of  the  California  Almond  Growers  Exchange,  for 
instance,  to  delay  the  delivery  of  his  almonds  to  the  Exchange  in  order 
to  devote  his  time  and  equipment  to  other  farm  work.     Although 

20  "  Practically  every  agent  of  production  lias  many  possible  uses.  Since  it  is 
scarce,  it  is  impossible  to  employ  it  fully  in  all  of  them.  To  use  it  for  any  one 
purpose  means  to  forego  the  opportunity  of  applying  it  to  other  purposes.  Its 
use  therefore  costs  whatever  it  might  have  been  worth  if  it  had  been  put  to  its 
possible  alternative  uses."  (Bye,  R.  T.  Principles  of  economics,  p.  308.  Alfred 
A.  Knopf,  New  York.     1924.) 


Bul.  432]       SOME   ECONOMIC   PROBLEMS  INVOLVED   IN   POOLING   FRUIT      31 

such  a  practice  may  be  more  profitable  to  the  individual  grower,  it 
often  interferes  with  the  orderly  marketing  of  the  crop.  The  demand 
for  almonds,  for  example,  is  essentially  a  seasonal  one;  that  is,  the 
great  bulk  of  the  unshelled  almonds  are  consumed  during  the  holiday 
period  and  it  is  difficult  to  sell  them  unless  they  are  on  the  market 
before  that  time. 

Because  some  members  habitually  deliver  their  almonds  too  late 
for  the  holiday  trade  the  Exchange,  in  1922,  instituted  the  practice 
of  establishing  early  and  late  pools.21  The  first  is  closed  by  about 
November  1  in  order  that  all  of  the  almonds  delivered  to  it  may  reach 
the  eastern  markets  in  time  for  the  holiday  trade.  Almonds  that  are 
delivered  after  November  1  are  assigned  to  the  second  pool,  and  since 
the  net  returns  received  for  almonds  in  this  pool  are  both  smaller 
in  amount  and  less  promptly  made,  the  establishment  of  two  or  more 
pools  during  the  season  is  an  effective  means  of  inducing  the  members 
to  make  early  deliveries. 

In  1926  the  Sun-Maid  Raisin  Growers  of  California  established 
early  and  late  delivery  pools  for  sodas,  sulphurs,  oil  Thompsons,  oil 
Sultanas,  and  currants.22  From  a  marketing  standpoint  it  is  desirable 
for  the  association  to  have  the  products  delivered  to  it  early  in  the 
fall.  It  is  believed  that  the  returns  will  generally  be  higher  on  the 
early  pools  of  these  raisins  than  on  the  late  pools. 


COSTS  OF   MARKETING 

Improvement  in  marketing  involves  both  orderly  marketing  and 
the  economical  performance  of  the  essential  marketing  services.  This 
section  will  be  confined  to  a  discussion  of  the  costs  of  marketing  as 
affected  by  (1)  the  number  of  grades,  (2)  the  size  of  the  pooling  area, 
and  (3)  the  length  of  the  pooling  period. 

Relation  of  the  number  of  Grades  to  the  Costs  of  Marketing. — As 
the  number  of  grades  into  which  the  fruit  is  sorted  is  increased, 
certain  costs  such  as  grading  and  accounting  increase  because  of  the 
additional  labor  and  equipment  required.  For  example,  in  the  grad- 
ing of  oranges  the  sorting  of  each  quality  grade  into  the  various  sizes 
requires  a  separate  mechanical  grader.  Thus,  an  association  having 
five  quality  grades  will  require  more  machinery  than  an  association 
handling  the  same  quantity  of  fruit  that  has  only  three  quality  grades. 

2i  Tucker,  T.  C.     A  report  of  1922  sales.     The  Minute  Book,  1  (4)  :  3.     1923. 
22  Anonymous.     Members  will  benefit   from  revised   bleached   pool   procedure. 
Sun-Maid  Business,  July,  1926,  p.  11. 


32  UNIVERSITY    OF    CALIFORNIA — EXPERIMENT    STATION 

The  number  of  laborers  required  to  sort  the  fruit  according  to  quality 
is  also  increased  as  the  number  of  quality-grades  is  increased.  Fur- 
thermore, the  accounting  costs  are  larger  with  many  grades  than 
with  only  a  few. 

Relation  of  the  Pooling  Area  to  Efficient  Operation  of  the  Packing 
Plant. — In  each  of  the  fruit  pooling  areas  in  California  there  is 
found  at  least  one  plant  in  which  the  product  is  prepared  for  the 
market.  In  many  pooling  areas  there  are  two  or  more  plants;  but 
in  no  instance  is  there  only  one  plant  engaged  in  preparing  for  sale 
the  fruit  produced  in  more  than  one  pooling  area.  The  main  reason 
for  this  seems  to  be  that  the  additional  time  and  labor  involved  in 
keeping  separate  the  fruit  from  two  or  more  pooling  areas  that  was 
prepared  in  the  same  plant  would  involve  a  cost  greater  than  any 
corresponding  gain  that  could  be  obtained  by  doing  so. 

The  chief  advantages  of  a  large  plant  in  the  marketing  of  fruits 
are  the  economy  of  skill  and  the  economy  of  machinery.  If  the 
product  is  of  such  a  nature  that  considerable  savings  can  be  made  by 
the  operation  of  a  large  plant,  such  as  is  the  case  in  the  seeding  of 
raisins,  the  shelling  of  almonds,  and  the  manufacture  of  by-products, 
it  would  seem  that  the  necessary  amount  of  fruit  can  best  be  obtained 
by  extending  the  area  of  the  pool.  This  principle  is  followed  by 
the  associations  in  California.  For  example,  a  pooling  area  covering 
considerable  territory  is  universally  employed  by  the  associations  in 
order  to  obtain  a  sufficient  volume  of  fruit  to  utilize  the  by-products 
economically.  The  local  associations  of  the  California  Fruit  Growers 
Exchange,  while  pooling  their  domestic  fresh-fruit  shipments  on  a 
local  basis,  employ  the  general  pool  for  their  lemons  and  oranges 
which  are  manufactured  into  by-products.23 

Whenever  the  character  of  the  product  is  such  that  a  large  plant 
is  more  economical  in  preparing  it  for  the  market,  it  is  usually  well 
adapted  also  to  a  general  pool,  in  that  it  can  be  graded  with  sufficient 
accuracy  so  that  buyers  will  not  differentiate  between  the  products 
in  a  given  grade  from  different  sections.  This  is  true  mainly  because 
a  large  plant  is  not  required  unless  the  form  of  the  product  is  changed, 
necessitating  elaborate  machinery,  and  whenever  the  form  of  the 
product  is  changed  the  tendency  is  for  minor  differences  to  be  elim- 
inated and  the  finished  product  to  become  a  uniform  blend. 

On  the  other  hand,  fresh  fruits  can  be  handled  efficiently  in  a 
packing  house  of  moderate  size  because  the  machinery  required  and 

2  3  The  local  citrus  associations,  for  example,  have  organized  the  Exchange 
Orange  Products  Company  and  the  Exchange  Lemon  Products  Company  for  the 
purpose  of  manufacturing  by-products  from  cull  oranges  and  lemons. 


BUL.  432]       SOME  ECONOMIC   PROBLEMS   INVOLVED  IN   POOLING   FRUIT      33 

the  processes  involved  are  not  intricate.  A  moderate-sized  orange 
packing  house,  for  example,  will  give  constant  employment  to  the  best 
machines  known  for  every  process,  so  that  a  very  large  packing  house 
is  merely  the  equivalent  of  several  parallel  smaller  packing  houses 
under  one  roof.  With  regard  to  graders,  for  instance,  it  takes  only 
a  small  volume  of  fruit  to  give  constant  employment  to  one  unit, 
which  is  complete  in  itself;  and  as  a  rule  a  larger  volume  of  fruit  is 
taken  care  of  by  the  use  of  multiples  of  this  unit. 

Relation  of  the  Pooling  Area  to  the  Costs  of  Selling. — The  econo- 
mies of  selling  are  among  the  chief  causes  of  the  tendency  toward 
large-scale  cooperative  marketing  associations.  The  activities  of  such 
associations  as  the  Sun-Maid  Raisin  Growers  of  California  and  the 
California  Fruit  Growers  Exchange  would  have  been  impossible  if 
the  costs  could  not  have  been  spread  over  a  large  number  of  units. 
The  volume  of  fruit  necessary  to  secure  all  of  the  economies  in  selling 
may  be  obtained  with  medium-sized  pools,  because  the  volume  of  fruit 
handled  by  a  sales  agency  may  be  increased  as  readily  by  a  federation 
of  local-pooling  areas  as  by  enlarging  a  given  pooling  area.  For 
example,  in  the  California  Fruit  Growers  Exchange  and  the  California 
Fruit  Exchange  a  sufficient  volume  of  fruit  for  economical  operation 
is  obtained  by  a  federation  of  local  associations,  each  of  which  pools 
its  products  independently  of  the  others. 

Even  under  a  federation,  however,  a  pooling  area  of  considerable 
size  is  desirable.  The  California  Fruit  Exchange,  for  example,  has 
found  that  in  the  sale  of  fruit  "  there  is  a  big  advantage  in  establish- 
ing a  brand  and  being  able  to  have  a  car  of  this  brand  on  the  market 
every  day."24  The  buyer  of  fruit  desires  to  have  a  consistent  supply 
of  a  given  brand  of  fruit  in  the  market  so  that  he  is  assured  that  he 
can  buy  the  same  kind  and  quality  of  fruit  every  day,  and  by  so  doing 
build  up  a  systematic  and  consistent  channel  of  trade.  Furthermore, 
consistent  daily  shipment  of  a  given  brand  of  fruit  enables  the  buyer 
to  purchase  his  current  requirements  without  spending  a  great  deal 
of  time  in  the  examination  of  the  fruit  before  buying  it.  According 
to  Mr.  Culver,  the  jobbers'  costs  are  increased  because  of  the  addi- 
tional work  required  to  sell  the  'tail-ends'  of  the  many  different  lots 
which  they  buy.  If  each  car  contained  one  brand,  the  buyers  could 
go  back  on  the  market  the  next  day  and  purchase  the  same  brand  as 
they  handled  the  day  before,  and  in  this  way  they  would  have  no 
clean-up  sales. 


24  Culver,   E.   S.      How   fruit   is   handled    on    eastern   markets.     Blue   Anchor, 
1  (9)  :   13.     1924. 


34  '     UNIVERSITY    OF    CALIFORNIA — EXPERIMENT    STATION 

Again,  in  the  sale  of  fruit  at  auction,  the  costs  are  increased  by 
having  a  large  number  of  brands  in  one  car.  Obviously,  it  requires 
a  larger  catalogue  to  list  a  car  containing  many  brands  than  it  does 
one  containing  only  a  few  brands.  In  one  exceptional  case,  there  were 
300  different  lines  of  fruit  in  a  single  carlot  shipment  from  one  associa- 
tion. The  auction  catalogue  of  this  shipment  was  fifteen  pages  in 
length.25  On  the  other  hand,  a  carlot  shipment  of  fruit  from  associa- 
tions having  a  well-developed  pooling  plan  may  usually  be  listed  in 
a  two-page  catalogue.26  It  also  requires  considerably  more  space  to 
display  properly  a  carlot  of  fruit  with  many  lines  on  the  auction 
company's  floor  than  is  required  for  a  car  with  only  a  few  lines.  In 
addition,  about  twice  as  much  time  is  required  to  unload  and  sort  a 
''drug  store"  car,  as  is  required  for  a  standardized  car. 

Relation  of  the  Length  of  the  Pooling  Period  to  the  Costs  of  Mar- 
keting.— The  costs  of  operating  a  packing  house  are  influenced  by 
the  uniformity  of  the  flow  of  fruit  through  it.  A  packing  house  is 
built  and  equipped  to  handle  approximately  a  certain  amount  of  fruit 
with  optimum  efficiency.  Any  amount  less  than  that  sufficient  to 
operate  the  plant  to  optimum  capacity  means  an  increased  cost  per 
unit.  On  the  other  hand,  a  supply  of  fruit  so  large  that  the  packing 
house  is  taxed  beyond  its  optimum  capacity,  also  increases  the  per- 
unit  cost  of  operation.27  To  otain  the  most  economical  operation  it  is 
necessary  that  the  management  be  given  the  power  to  control  the 
flow  of  fruit  from  the  members  to  the  packing  house.  The  extent  to 
which  the  members  are  willing  to  give  the  management  this  necessary 
control,  however,  is  influenced  by  the  lengths  of  the  pooling  periods. 
This  subject  was  discussed  in  the  section  on  orderly  marketing  on 
pages  26  to  31. 

A  very  short  pooling  period,  such  as  one  day,  complicates  the 
physical  handling  of  the  product.  A  volume  of  fruit  just  sufficient 
to  completely  load  one  or  more  cars  may  not  be  received  during  the 
day.  Consequently,  some  of  the  fruit  must  be  carried  over  on  the 
packing-house  floor  the  following  day,  or  shipped  out  in  less  than 

25  Eead,  F.  W.  New  standardization  work  in  Placer  County.  Blue  Anchor, 
1  (1):   6.     1924. 

26  Read,  F.  W.  How  deciduous  fruit  is  sold — with  special  reference  to  the 
auction.     Blue  Anchor,  3  (2) :  24.     1926. 

27  In  discussing  the  relation  between  fluctuations  in  the  utilization  of  a  given 
plant  and  costs,  Clark  says,  * '  Because  these  forces  are  so  complex,  differing  from 
plant  to  plant,  no  generalization  can  be  made  as  to  just  how  the  curve  of  operat- 
ing expense  behaves  when  plants  work  at  different  percentages  of  their  normal 
capacity,  except  the  fact  that  when  the  overload  becomes  great,  costs  always  in- 
crease faster  than  output."  (Clark,  J.  M.  Economics  of  overhead  costs,  p.  94. 
The  University  of  Chicago  Press,  Chicago.     1923. 


BUL.   432]       SOME   ECONOMIC   PROBLEMS   INVOLVED  IN   POOLING   FRUIT      35 

carlots.  If  part  of  the  fruit  is  carried  forward  into  the  next  day,  it 
means  either  keeping  track  of  that  particular  lot  until  it  is  sold  or 
inventorying  it  into  that  day's  pool  at  some  arbitrary  price. 

The  accounting  expense  is  also  increased  as  the  number  of  pools 
during  the  season  is  increased.  Each  pool  involves  a  complete  settle- 
ment to  the  members.  Thus  two  pools  during  the  month  necessitate 
nearly  twice  as  much  work  as  one  pool.  This  expense  in  the  short 
pools  is  somewhat  offset  by  the  additional  costs  of  making  advance 
payments  when  the  pooling  periods  are  long. 


PAYMENTS   TO    GROWERS 

TIME  OF  MAKING  PAYMENTS  TO  GROWEKS 

Pooling  Results  in  a  Delay  in  Making  Returns  to  Growers. — 
When  the  growers'  fruit  is  pooled,  payment  cannot  safely  be  made 
in  full  until  the  returns  have  been  received  from  the  sales  of  the 
bulk  of  the  fruit  within  the  pool.  The  length  of  time  before  the  final 
payment  can  be  made  depends  upon  the  length  of  the  pooling  period ; 
and  when  the  pooling  period  is  long,  the  resulting  delay  in  making 
the  final  payment  is  apt  to  be  a  source  of  irritation.  Farmers  are  not 
so  well  accustomed  as  are  men  in  many  other  lines  of  business  to  wait 
for  their  money  for  some  little  time  after  selling  their  products. 
Private  buyers  have  almost  always  furnished  the  farmer  with  a  cash 
market,  and  consequently  he  is  apt  to  chafe  under  the  strain  of  having 
to  wait  for  his  money,  especially  when  he  knows  that  he  could  have 
obtained  cash  if  he  had  not  been  in  the  pool.  In  order  to  expedite 
payments  some  associations  have  adopted  short  pooling  periods,  even 
though  they  are  disadvantageous  in  other  respects.  Several  of  the 
managers  of  local  citrus  packing  houses,  for  example,  gave  this  as 
their  main  reason  for  changing  from  the  seasonal  pool  to  the  short 
pools. 

The  management  of  the  California  Almond  Growers  Exchange  also 
believes  that  early  payment  is  an  important  reason  for  having  more 
than  one  pool  during  the  season.  Prior  to  the  establishment  of  the 
early  and  late  pools  by  the  Exchange  in  1922,  the  grower  who  deliv- 
ered all  of  his  crop  early  was  forced  to  wait  for  his  final  payment 
because  of  the  late  deliveries  of  his  neighbor.  This  often  meant  a 
wait  of  a  year  or  more.  As  compared  with  this,  the  first  pools  on  the 
major  varieties  of  the  1922  crop  were  closed  early  in  the  spring  of 


36  UNIVERSITY    OF    CALIFORNIA — EXPERIMENT    STATION 

1923,  although  the  final  payments  on  the  second  and  third  pools  were 
not  made  until  nine  months  later.28 

Payments  to  Growers  when  the  Pooling  Period  is  Long. — When 
the  pooling  period  is  longer  than  a  month  or  six  weeks,  substantial 
advances  are  usually  made  to  the  members.  The  old  contracts  of 
several  of  the  dried-fruit  associations  provided  for  certain  specified 
minimum  advances  to  be  made  at  the  time  of  delivery.29  This  speci- 
fied minimum  advance  was  the  cause  of  much  trouble.  The  amount 
was  frequently  higher  than  the  price  for  which  the  products  actually 
sold,  and  banks  became  reluctant  to  make  loans  under  such  a  contract. 
Because  of  this  the  specified  minimum  advance  has  been  eliminated 
and  in  its  place  has  been  inserted  a  clause  which  provides  for  as  sub- 
stantial an  advance  payment  as  the  market  and  financial  conditions 
will  permit. 

The  first  advance  on  each  of  the  various  grades  should  ordinarily 
be  in  proportion  to  the  anticipated  value  of  each  grade.  This,  how- 
ever, has  not  always  been  done.  For  instance,  the  first  advance  on 
each  of  the  various  sizes  of  Sunsweet  prunes  from  1921  to  1923,  in- 
clusive, seems  to  have  borne  no  close  relation  to  the  opening  price,30 
nor  to  the  total  returns  of  the  growers.  However,  the  advance  pay- 
ments on  the  1924  and  1925  prune  crops  show  a  much  closer  relation 
to  the  opening  price.  The  California  Peach  and  Fig  Growers  Associa- 
tion has  also  advanced  a  higher  price  on  some  grades  of  fruit  in  pro- 
portion to  their  value  than  on  others.  For  instance,  in  1923  the  same 
amount  was  advanced  on  "B"  grade  fruit  as  on  "A"  grade  fruit, 
because  "it  was  found  that  early  deliveries  indicated  that  some 
growers  in  certain  sections  were  unable  to  deliver  fruit  above  "B" 
grade,  and  in  other  sections  certain  growers  had  a  large  percentage 
of  this  grade.  Faced  with  these  conditions  the  management  of  the 
Association  felt  that  the  growers  thus  affected  might  find  it  difficult 
to  meet  their  harvesting  costs  unless  the  same  advance  was  paid  on 
the  delivery  of  "B"  grade  fruit  as  is  provided  in  the  contract  for 
"A"  grade  fruit.31 


28  Anonymous.  Final  checks  paid  on  first  pools.  Minute  Book,  1(5):  3. 
1923. 

.     1922  pools.     Minute  Book,  1  (10):  11.     1924. 

29  A  clause  specifying  a  minimum  advance  appeared  in  the  crop  contract  of  the 
California  Prune  and  Apricot  Growers  up  to  1922,  in  the  Sun-Maid  Eaisin  Grow- 
ers contract  up  to  1923,  and  in  the  California  Peach  and  Fig  Growers  contract 
up  to  1924. 

30  The  opening  price  is  perhaps  the  best  early  indication  of  the  relative  value 
of  the  various  grades,  since  it  is  presumably  based  upon  demand  and  supply 
conditions. 

3i  Reeder,  .J.  L.  Peach  and  fig  final  settlement.  Associated  Grower,  5  (8):  13 
1923. 


BUL.   432]       SOME   ECONOMIC   PROBLEMS   INVOLVED   IN    POOLING   FRUIT       37 

If  the  advances  are  made  on  the  basis  of  a  flat  rate  per  unit,  those 
growers  who  deliver  a  large  proportion  of  low-grade  fruit  are  benefited 
at  the  expense  of  those  who  deliver  a  large  proportion  of  high-grade 
fruit,  because  the  money  to  make  the  advance  is  obtained  either  by 
borrowing  at  the  bank  or  from  returns  on  fruit  already  sold,  and  the 
amount  which  can  be  obtained  in  either  case  depends  upon  the  market 
value  of  the  fruit.  The  first  advance  payment  is  generally  made  soon 
after  the  members  have  delivered  their  fruit  to  the  association.  For 
instance,  in  1924  the  Sun-Maid  Raisin  Growers  of  California  mailed 
the  first  advance  payment  to  each  grower  within  six  days  after  his 
weight  receipts  were  received,32  and  in  1925  the  members  of  the  Cali- 
fornia Prune  and  Apricot  Growers  Association  received  their  first 
advance  payment  on  prunes  within  ten  days  after  they  made  de- 
liveries.33 

In  the  dried-fruit  associations  the  first  payments  are  usually  made 
from  borrowed  money.  Later  payments,  however,  are  not  usually 
made  until  the  loans  have  been  paid  off  and  additional  funds  accumu- 
lated from  the  sales  of  fruit.  Even  though  growers  have  received 
90  to  95  per  cent  of  the  value  of  their  crop  within  a  comparatively 
short  time,  they  are  likely  to  be  irritated  at  any  substantial  delay  in 
the  final  settlement.  The  question  of  whether  the  final  payments  can 
be  made  earlier  is  an  important  one.  If  the  final  payment  is  not  made 
until  all  of  the  fruit  is  sold,  it  may  be  held  up  for  many  months 
because  one  or  two  per  cent  of  the  crop  remains  unsold.  On  the  other 
hand,  if  the  final  payment  is  made  before  the  bulk  of  the  crop  has 
been  sold,  it  may  mean  that  the  growers  have  been  paid  more  than 
the  fruit  will  bring  on  the  market.  For  example,  "  under  the  old 
contracts,  the  Sun-Maid  Raisin  Growers  purchased  the  carry-over 
raisins  in  August  a  year  after  delivery  time  at  the  supposed  market 
value  of  that  date,  and  such  purchases  often  led  to  disastrous  results 
and  billbacks.  "34 

On  the  whole  it  seems  desirable  that  an  association  adopt  a  con- 
servative policy  in  this  regard,  for  over-payments  are  much  more 
disastrous  than  slow  payments.  If  the  growers  in  a  certain  pool  have 
been  over-paid,  the  loss  must  either  be  assessed  back  to  that  pool 
or  be  borne  by  future  pools.  The  crop  contracts  of  the  associations 
specifically  provide  that  losses  shall  be  assessed  back  to  the  growers, 
but  to  do  so  is  very  difficult.     An  almost  certain  way  of  wrecking  an 

32  Anonymous.  Deliveries  coming  in  fast  and  averaging  high.  Sun-Maid 
Business,  Oct.,  1924,  p.  14. 

33  Interview,  J.  T.  Brooks,  Sept.  15,  1925,  San  Jose. 

34  Merritt,  Ealph  P.  1923  blockade  cleared — open  road  ahead.  Sun-Maid 
Business,  April,  1925,  p.  3. 


38  UNIVERSITY    OF    CALIFORNIA EXPERIMENT    STATION 

association  is  to  resort  to  'bill-backs'  in  order  to  take  care  of  losses. 
For  this  reason  very  few  associations  attempt  to  'bill-back'  the  grow- 
ers, unless  it  is  already  bankrupt.  The  usual  procedure  is  to  charge 
the  losses  to  future  pools.  Such  a  procedure  is  unfair,  especially 
to  the  new  members,  but  it  is  used  because  it  results  in  less  trouble 
than  an  assessment.  In  order  to  prevent  the  disastrous  results  of 
overpayment,  it  is  necessary  to  hold  up  the  final  payment  until  most  of 
the  product  has  been  sold,  which  may  mean  that  the  final  payment 
cannot  be  made  for  a  considerable  period  of  time. 

The  policy  that  is  now  followed  by  many  of  the  associations  in 
California  is  to  keep  each  pool  open  until  most  of  the  fruit  in  that 
pool  has  been  sold.  The  crop  contracts  of  some  of  the  associations 
provide  that  the  returns  from  all  fruit  which  has  been  sold  prior 
to  a  certain  date  shall  be  distributed  to  the  growers,  but  they  do  not 
provide  that  the  unsold  portion  of  the  crop  shall  be  inventoried  into 
the  following  pool.35  The  practice,  however,  among  nearly  all  of 
the  associations  is  to  inventory  the  last  one  or  two  per  cent  of  the 
crop  into  the  following  pool,  and  thus  close  the  pool  earlier  than 
would  otherwise  be  possible.  For  example,  the  Executive  Committee 
of  the  California  Prune  and  Apricot  Growers  Association  authorized 
the  manager  to  inventory  the  1923  crop  prunes  that  were  on  hand 
on  April  30,  1925,  into  the  1924  pool,  so  that  the  1923  prune  pool 
might  be  closed  on  that  date.36 

Another  question  regarding  final  payments  is  whether  the  final 
payment  on  each  grade  of  a  given  variety  of  fruit  should  be  made 
as  soon  as  that  particular  grade  is  sold.  As  a  rule,  some  grades  are 
usually  disposed  of  more  quickly  than  others.  For  instance,  the 
larger-sized  prunes  and  peaches  are  usually  sold  early  in  the  season. 
Among  those  associations  which  do  not  fix  an  arbitrary  differential 
between  the  grades  as  a  basis  for  making  the  returns,  the  general 
practice  is  to  make  a  final  payment  on  each  grade  as  soon  as  it  is 
sold.  This  method  has  been  adopted  recently  by  the  California  Peach 
and  Fig  Growers  Association.37 


35  For  example,  see  crop  contracts  of  California  Peach  and  Fig  Growers  Asso- 
ciation and  Sun-Maid  Eaisin  Growers  of  California. 

36  The  amount  of  the  1923  crop  of  prunes  on  hand  on  April  30,  1925,  was  esti- 
mated to  be  357,000  pounds.  (Rhoades,  I.  O.  Annual  report  of  the  president. 
Sunsweet  Standard,  8  (12)  :  9.     1925. 

37  See  1925  crop  contract. 


BUL.  432]       SOME   ECONOMIC   PROBLEMS   INVOLVED   IN   POOLING   FRUIT      39 


PAYMENTS  TO  GKOWEKS  BASED  UPON  AN  ARBITRAEY  PEICE 

DIFFERENTIAL 

Illustrations  of  an  Arbitrary  Price  Differential. — Instead  of  re- 
turning to  the  growers  the  actual  amount  for  which  a  given  grade 
of  fruit  sold  during  the  period  of  the  pool,  less  its  pro  rata  share  of 
the  expenses,  some  associations  arbitrarily  fix  the  differential  between 
the  different  grades,  and  return  the  total  proceeds  from  the  sale  of 
the  fruit  on  the  basis  of  this  differential.  In  1924  the  Sun-Maid 
Raisin  Growers  of  California  extended  the  plan  of  making  a  differ- 
ential in  the  advance  payment   of  the   several   grades   of  Muscats, 

TABLE  4 
Advance,  Final,  and  Total  Payments  for  Prunes  of  Sunsweet  Quality, 

1925* 


Size 

First 
Cents  per  pound 

Second 
Cents  per  pound 

Final 
Cents  per  pound 

Total 
Cents  per  pound 

20-31 

12.00  flat 

2.  50  flat 

0.4063  flat 

14. 9063  flat 

32-41 

5.25b.b.f 

1.25 

1.1572 

7.8072  b.b. 

42-51 

3.88 

0.75 

0.6258 

5.3508 

52-61 

3.88 

0.75 

0.4495 

5. 1245 

62-71 

3.75 

0.50 

0.4050 

4.7050 

72-80 

3.50 

0.50 

0.3644 

4.4144 

81-90 

3.38 

0.50 

0.1362 

4.0112 

91-100 

3.38 

0.50 

.      0. 1340 

4.0090 

101-120 

1.50  flat 

0.25 

0.1239 

1.8739  flat 

121-up 

1.50 

0.25 

0.1803 

1.5697 

*  Anonymous.    Payments  for  prunes, 
t  Bulk  basis. 


Sunsweet  Standard,  10  (2)  :7.    July,  1926. 


Thompson  Seedless,  and  dried  currants,  to  include  bleached  Thomp- 
sons and  bleached  Sultanas,  and  in  this  way  reduced  the  number  of 
pools  carried  on  the  books  of  the  Association  from  27  in  1923  to  8  in 
1924.38  The  present  plan  provides  that  the  full  differential  be  made 
in  the  first  advance  payment  of  the  several  grades  of  each  variety, 
and  that  thereafter  each  member  receive  the  same  additional  payment 
per  pound  within  each  pool.39 

The  method  of  establishing  an  arbitrary  price  differential  in  the 
California  Prune  and  Apricot  Growers  Association  is  more  compli- 
cated than  that  employed  by  the  Sun-Made  Raisin  Growers  of  Cali- 
fornia.    In  table  4  it  will  be  noted  that  the  first  advance  payment 

38  Anonymous.    Date  delivery  system  adopted  at  all  plants.   Associated  Grower, 
6  (7):  17.     1924. 

39  Interview  with  J.  L.  Eeed,  April  24,  1925,  Fresno. 


40  UNIVERSITY    OF    CALIFORNIA EXPERIMENT    STATION 

on  prunes  that  are  between  the  sizes  32  and  100,  inclusive,  is  on  the 
bulk  basis,  which  means  that  each  of  the  ten  sizes  of  prunes  within 
a  given-size  pool  is  paid  a  different  amount.40  In  recent  years  the 
practice  has  been  to  name  different  basic  prices  for  the  different  size- 
pools,  because  it  was  found  that  the  basic  differential  of  $1.00  per  ton 
per  point  does  not  represent  the  variation  in  the  market  value  of  the 
different  sizes.41  Thus  at  the  present  time,  in  the  first  advance  pay- 
ment there  is  a  differential  of  $1.00  per  ton  per  point  within  each  size- 
pool,  and  in  addition  there  is  sometimes  a  differential  between  each 
of  the  size  pools.  The  subsequent  advance  payments  are  at  a  flat 
rate  per  pound  within  each  size-pool.  In  the  first  advance  payment 
the  grower  who  delivers  prunes  that  test  45  to  the  pound  receives 
$1.00  per  ton  more  than  a  grower  who  delivers  prunes  that  test  46  to 
the  pound ;  but  in  the  subsequent  payments  these  two  growers  receive 
the  same  amount  per  ton.  The  payments  may  be  different,  however, 
for  one  size-pool  and  for  another;  for  instance,  in  1925  the  second 
payment  on  30/40s  was  1.25  cents  per  pound  and  on  40/50s  it  was 
0.75  cent  per  pound.  Moreover,  the  association  may  vary  the  amounts 
of  subsequent  payments  if  there  are  violent  changes  in  the  price 
relationships  between  the  different  sizes. 

Difficulties  Involved  in  Fixing  a  Price  Differential  as  a  Basis  for 
Pool  Payments. — The  chief  difficulty  in  fixing  a  price  differential  as 
a  basis  for  pool  payments  at  the  beginning  of  the  season  is  caused 
by  the  necessity  of  forecasting  in  advance  both  the  relative  cost  of 
handling  the  different  grades  and  the  relative  prices  at  which  they 
will  sell.  If  each  grower's  returns  are  to  represent  the  average  price 
at  which  fruit  of  a  quality  and  size  similar  to  his  actually  sold  during 
the  period  of  the  pool,  less  its  pro  rata  share  of  the  expenses,  the 
association  must  be  able  to  make  the  necessary  forecasts  with  a  con- 
siderable degree  of  accuracy. 

The  problem  of  forecasting  the  relative  costs  of  handling  each  of 
the  various  grades  is  less  difficult  than  that  of  forecasting  the  relative 
prices  which  will  be  paid  for  them,  because  the  relative  cost  can  be 
determined  with  a  fair  degree  of  accuracy  on  the  basis  of  past  experi- 
ence. Furthermore,  that  portion  of  the  total  indirect  cost  which  is 
charged  to  a  given  grade  can  only  be  determined  on  some  arbitrary 

40  For  example,  the  first  advance  in  1025  on  40/50s  was  3%  cents  per  pound, 
bulk  basis.  This  indicates  that  all  prunes  between  42  and  51  to  the  pound  were 
paid  according  to  a  differential  of  one-half  mill  per  pound  based  upon  3%-cent 
price  on  80s.  Thus,  45s  received  a  first  advance  of  4.75  cents,  44s  received  4.8 
cents,  and  46s  received  4.7  cents. 

4i  Anonymous.  Opening  prices,  1922  prunes.  Sunsweet  Standard,  6(4):  12. 
1922. 


BUL.   432]       SOME   ECONOMIC   PROBLEMS   INVOLVED   IN    POOLING    FRUIT      41 

basis  anyway.  On  the  other  hand,  it  is  almost  always  impossible  for 
an  association,  even  though  it  has  the  best  available  information 
regarding  demand  and  supply  conditions,  to  forecast  in  advance  the 
relative  prices  which  buyers  will  pay  for  the  different  grades.  The 
entire  crop  of  fruit  is  seldom  sold  on  the  price  schedule  prevailing  at 
the  beginning  of  the  season,  nor  do  the  prices  of  the  different  grades 
increase  or  decrease  in  the  same  proportion.  For  example,  the  Cali- 
fornia Prune  and  Apricot  Growers  Association  sold  the  1924  crop 
of  prunes  at  five  different  prices,  and  as  the  season  advanced  the  prices 
of  some  of  the  grades  increased  or  decreased  more  than  others.  As  a 
means  of  reflecting  these  price  changes  in  the  returns  to  the  growers, 
the  association  varied  the  amount  of  the  subsequent  payments. 

A  second  disadvantage  of  the  arbitrary  differential  is  that  final 
payments  on  any  given  grade  of  fruit  cannot  be  made  until  all  grades 
of  the  fruit  are  sold.  This  may  frequently  work  a  hardship  on  those 
growers  whose  crop  contains  a  large  proportion  of  the  grades  that 
are  sold  early.  However,  if  a  large  advance  payment  on  each  of  the 
grades  in  proportion  to  the  anticipated  value  is  made,  this  unfairness 
is  minimized,  although  it  is  not  entirely  eliminated. 

Advantages  of  Arbitrary  Price  Differential. — Although  there  are 
certain  disadvantages  in  distributing  the  returns  to  the  growers  on 
the  basis  of  an  arbitrary  price  differential,  it  is  nevertheless  desirable 
to  do  so  under  some  conditions.  In  the  case  of  raisins,  where  the  com- 
modity is  extensively  processed,  and  the  selling  grades  are  different 
from  the  receiving  grades,  it  is  evident  that  an  arbitrary  differential 
must  be  established.  Recently  as  many  as  thirty-nine  different  packs 
were  quoted  at  different  prices  to  suit  various  classes  of  trade.  The 
demand  governs  the  amount  of  the  crop  that  will  go  into  each  of  the 
different  packs,  and  these  selling  grades  bear  no  close  relation  to  the 
receiving  classification.42  "For  instance,  a  pack  requiring  3-crown 
Muscats  would  not  necessarily  be  taken  exclusively  from  any  one  of 
the  receiving  classifications,  so  that  the  3-crowns  might  be  sorted  out 
from  wherever  they  could  be  found  and  sold  for  the  benefit  of  the 
members  of  the  pool."43  Furthermore,  the  Association  maintains 
a  uniform  selling  standard  year  after  year,  as  this  is  necessary  in 
order  to  maintain  the  reputation  of  Sun-Maid  goods.  On  the  other 
hand,  the  receiving  classifications  vary  from  season  to  season,  depend- 
ing upon  the  quality  of  the  crops.44 


42  Merritt,    Ralph    P.     Why   not    estimate    return    to    the    grower?      Sun-Maid 
Business,  Nov.,  1924,  p.  3. 

43  Anonymous.     Loyal  members  protected  by  vigorous  action.     Sun-Maid  Busi- 
ness, Oct.,  1924,  p.  14. 

44  Ibid. 


42  UNIVERSITY    OF    CALIFORNIA EXPERIMENT    STATION 

A  second  advantage  of  the  arbitrary  differential  is  that  it  enables 
the  Association  to  adjust  the  prices  between  the  various  grades,  so 
that  the  returns  to  the  growers  will  reflect  the  prices  which  the  buyers 
are  willing  to  pay  for  each  of  the  grades.  For  instance,  suppose  that 
an  association  sells  nearly  all  of  the  best  grades  early  in  the  season, 
and  that  as  the  season  advances  some  unforeseen  condition  brings 
about  a  general  increase  in  the  price  of  the  fruit,  so  that  as  a  result 
of  this  condition  the  poorer  grades  are  sold  for  a  higher  price  than 
the  best  grades.  If  the  association  returned  to  the  growers  the  actual 
amount  for  which  each  grade  sold,  there  would  be  considerable  dis- 
satisfaction. Those  growers  who  produced  a  large  amount  of  the 
best  grades  would  see  no  reason  why  they  should  receive  a  lower  price 
than  was  paid  for  the  poorer  grades,  just  because  the  association 
followed  a  policy  which  appeared  to  be  the  best  at  that  time.  On  the 
other  hand,  the  growers  who  produce  a  large  proportion  of  the  poorer 
grades  would  have  no  reason  for  complaint,  if  the  association  prorated 
the  returns  on  the  basis  of  an  arbitrary  differential,  because  the 
higher  price  for  which  the  poorer  grades  sold  was  not  due  to  the  rela- 
tive quality  or  supply  of  the  different  grades,  since  if  the  high-quality 
fruit  had  not  been  sold  until  late  in  the  season  it  would  have  brought 
a  higher  price  than  that  obtained  for  the  low-quality  fruit,  but  solely 
to  the  fact  that  the  grades  were  sold  at  different  times. 


CONCLUSIONS 

The  cooperative  fruit-marketing  associations  in  California  either 
handle  the  products  of  their  members  on  a  pooling  basis  or  sell  them 
on  the  individual  grower's  accounts.  Pooling  is  generally  the  more 
satisfactory  method.  The  chief  advantages  of  pooling  as  compared 
with  selling  on  the  individual  growers'  accounts  are  :  (1)  pooling  gives 
the  individual  grower  better  insurance  against  the  risks  of  marketing ; 
(2)  pooling  facilitates  the  transfer  of  the  control  of  the  product  from 
the  members  to  the  management;  (3)  certain  costs  may  be  reduced 
by  pooling. 

(1)  If  the  growers  desire  to  retain  control  of  their  fruit,  it  is 
generally  necessary  for  them  to  assume  the  risk.  Since  fruit  cannot 
now  be  handled  on  organized  markets,  and  since  no  commercial  insur- 
ance is  available  for  the  major  portion  of  the  market  risks,  pooling 
offers  the  best  means  by  which  the  individual  growers  may  insure 
themselves  against  these  risks.  Pooling  distributes  the  risks  of 
marketing  by  providing  that  each  member  of  the  pool  receive  the 


BUL.  432]       SOME  ECONOMIC   PROBLEMS  INVOLVED   IN   POOLING   FRUIT      43 

same  price  per  unit  for  similar  grades  of  fruit.  The  loss  or  gain 
from  the  sale  of  an  individual's  product  affects  him  only  as  it  changes 
the  average  return  of  the  pool. 

If  pooling  is  to  be  an  effective  insurance  measure,  the  risks  must 
be  spread  over  a  large  number  of  units.  The  number  of  units  in  a 
pool  depends  upon  the  amount  of  territory  in  the  pool  and  upon  the 
length  of  the  pooling  period.  The  size  of  the  pooling  area  is  of  par- 
ticular importance  in  insuring  against  the  risks  caused  by  fluctuations 
in  prices  from  place  to  place,  and  the  length  of  the  pooling  period  is 
more  important  in  insuring  against  the  risks  caused  by  fluctuations 
in  prices  over  a  period  of  time.  In  the  marketing  of  fruits  time  risks 
are  generally  more  important  than  place  risks.  Consequently,  it  is 
usually  more  important  to  have  long  pooling  periods  than  to  have 
large  pooling  areas,  in  obtaining  a  sufficient  number  of  units  for 
effective  insurance. 

(2)  Pooling  is  generally  the  most  satisfactory  method  of  giving 
the  management  of  the  cooperative  marketing  association  control  over 
the  products  of  its  members,  and  thus  enables  it  to  promote  orderly 
marketing  by  regulating  the  distribution  of  the  product  as  to  time 
and  place,  and  to  develop  new  markets.  Since  the  different  methods 
of  pooling  vary  greatly  in  the  extent  to  which  they  facilitate  the  trans- 
fer of  control  from  the  members  to  the  management,  it  is  essential  that 
a  pooling  plan  be  selected  which  is  adapted  to  the  conditions  under 
which  the  association  operates. 

The  local  pool  may  limit  the  effectiveness  with  which  the  sales 
agency  can  distribute  the  product  among  the  various  markets  because 
it  is  to  the  interest  of  the  local  association  to  obtain  the  highest  return 
for  its  products  irrespective  of  the  returns  obtained  by  other  locals. 
If,  however,  there  is  an  arrangement  between  the  local  associations  and 
the  sales  agency  which  in  practice  will  give  substantial  control  to  the 
latter,  pooling  may  be  on  a  local  basis  without  a  material  decrease  in 
the  effectiveness  with  which  the  crop  can  be  distributed. 

When  the  pooling  period  is  short  the  tendency  is  for  the  members 
to  try  to  regulate  their  deliveries  of  fruit  according  to  the  expected 
fluctuations  in  the  market  prices.  Carried  to  its  logical  extreme  this 
would  mean  that  many  growers  with  inadequate  knowledge  and  acting 
independently  would  control  the  distribution  of  the  product  over  a 
period  of  time  instead  of  leaving  the  control  to  a  well-informed  sales 
agency.  However,  if  the  sales  agency  is  given  the  authority  to  deter- 
mine the  total  amount  of  the  product  to  be  marketed  at  any  particular 
time,  a  short-period  pool  will  give  the  individual  grower  a  consider- 


44  UNIVERSITY    OF    CALIFORNIA EXPERIMENT    STATION 

able  degree  of  freedom  without  decreasing  the  effectiveness  of  the 
distribution  of  the  product  as  a  whole. 

The  seasonal  pool  may  also  be  disadvantageous  in  this  regard.  If 
the  grower  knows  that  he  will  receive  the  average  price  for  the  season 
irrespective  of  the  time  his  fruit  is  sold,  he  will  regulate  his  deliveries 
to  the  association  according  to  his  own  best  interests,  which  may  or 
may  not  be  to  the  best  interests  of  the  entire  group.  In  order  to  over- 
come this  disadvantage  of  the  seasonal  pool  a  number  of  associations 
handling  dried  fruit  and  nuts  have  established  early  and  late  delivery 
pools. 

(3)  Pooling  tends  to  reduce  certain  costs  of  operation,  particu- 
larly with  regard  to  the  physical  handling  of  the  fruit  in  the  packing 
house  and  the  accounting  involved  in  making  payments  to  the  growers. 
A  reasonably  long  pooling  period  makes  possible  a  simplification  of 
these  operations. 

The  chief  disadvantages  of  pooling  as  compared  with  selling  on 
the  individual  growers'  accounts  are  (1)  the  difficulty  of  equitable 
adjustment  between  the  members  of  a  pool,  and  (2)  the  delay  in  the 
returns  from  the  sale  of  the  product. 

(1)  It  is  difficult  to  maintain  the  proper  differential  between  the 
members  of  a  pool  when  variations  exist  in  the  time  of  maturity  and 
in  the  quality  of  the  product  because  of  (a)  varying  efficiency  of  the 
individuals  and  (b)  differences  in  climatic  and  soil  conditions.  If 
the  pooling  plan  is  to  provide  the  proper  premium  on  quality,  it  is 
essential  that,  in  so  far  as  it  is  economical,  grading  should  be  carried 
to  the  point  where  all  of  the  products  in  a  given  grade  make  the  same 
appeal  to  the  buyers.  When  the  character  of  the  product  is  such 
that  grading  can  be  performed  with  sufficient  accuracy  so  that  every 
unit  of  the  commodity  in  the  grade  makes  the  same  appeal  to  the 
buyers,  regardless  of  its  place  of  production,  the  general  pool  can  be 
used  advantageously.  But  when  the  quality  of  the  commodity  is 
influenced  by  such  factors  as  soil,  climate,  cultural  skill  of  the  growers, 
and  handling  methods  in  the  packing  house,  and  the  method  of  grad- 
ing is  not  sufficiently  accurate  to  detect  the  variations  in  quality  which 
the  buyers  recognize,  the  local  pool  is  fairer  to  the  members. 

The  length  of  the  pooling  period  affects  the  maintenance  of  the 
proper  differential  when  the  fruit  in  the  pooling  area  matures  at 
different  times  during  the  season.  The  possibility  of  obtaining  addi- 
tional returns  from  marketing  fruit  at  one  time  rather  than  at  another 
depends  upon  the  existence  of  regular  changes  in  the  prices  of  the 
fruit  during  the  season.  If  there  is  a  pronounced  normal  seasonal 
variation  in  the  prices  of  a  given  kind  of  fruit,  it  is  necessary  to  have 


BUL.   432]       SOME   ECONOMIC   PROBLEMS   INVOLVED   IN   POOLING   FRUIT      45 

short  pooling  periods  in  order  properly  to  compensate  those  growers 
who  are  able  to  market  their  fruit  at  the  times  when  the  price  is 
normally  high. 

A  second  problem  connected  with  the  equitable  adjustment  be- 
tween the  members  of  a  pool  relates  to  the  prorating  of  expenses. 
The  general  principle  to  be  followed  in  prorating  the  expenses  of  the 
association  among  the  members  is  to  charge  the  direct  expenses  to 
the  particular  grade  of  each  kind  of  fruit  for  which  they  were  in- 
curred, and  to  allocate  the  indirect  expenses  in  a  uniform  fashion  on 
some  basis  that  seems  reasonable  and  appropriate.  The  packing- 
house expenses  can  generally  be  prorated  more  equitably  among  the 
growers  when  each  individual  packing  plant  is  owned  and  operated 
by  only  those  growers  who  deliver  their  fruit  to  it.  The  administra- 
tive and  sales  expenses  are  mostly  indirect  expenses,  and  they  can 
usually  be  prorated  as  equitably  with  a  federation  of  local  pooling 
areas  as  with  a  general  pool. 

The  bases  used  in  prorating  the  indirect  expenses  by  the  cooper- 
ative fruit-marketing  associations  in  California  are  (1)  a  flat  rate 
per  physical  unit,  (2)  a  certain  percentage  of  the  sales  value,  or  (3) 
a  combination  of  the  two.  Since  any  grade  of  a  given  kind  of  fruit 
is  usually  equally  responsible  for  the  overhead  costs  of  a  packing 
plant  with  any  other  grade,  the  practice  is  to  prorate  the  costs  on 
the  basis  of  a  flat^  rate  per  physical  unit.  This  same  method  is  fol- 
lowed by  some  associations  in  allocating  the  costs  of  selling  and  ad- 
ministration. Other  associations  allocate  these  costs  on  the  basis  of 
sales  value.  The  chief  disadvantage  of  allocating  indirect  expenses 
on  the  basis  of  sales  value  is  that  it  narrows  the  price  differential 
between  the  different  grades  to  the  growers,  and  to  that  extent  dis- 
courages the  production  of  high-quality  fruit. 

(2)  When  fruit  is  pooled  payment  cannot  safely  be  made  in  full 
until  the  returns  have  been  received  from  the  sales  of  the  bulk  of  the 
fruit  within  the  pool.  When  the  length  of  the  pooling  period  is  short, 
however,  this  disadvantage  is  minimized.  But  when  the  pooling 
period  is  long  the  resulting  delay  in  making  the  final  payment  is  apt 
to  be  a  source  of  irritation  to  the  growers.  For  this  reason  many 
of  the  fruit  associations  have  adopted  the  short-period  pools.  The 
disadvantage  of  a  seasonal  pool  in  this  respect  may  be  lessened  to  a 
considerable  extent  by  making  substantial  advance  payments  soon 
after  the  fruit  is  delivered. 

This  study  clearly  indicates  that  there  is  no  one  pooling  plan  that 
is  best  for  all  of  the  cooperative  fruit-marketing  associations.  In  order 
to  obtain  the  most  satisfactory  results  the   pooling   plan   must  be 


46  UNIVERSITY    OF    CALIFORNIA EXPERIMENT    STATION 

adapted  to  the  commodity  which  the  association  handles  and  to  the 
conditions  under  which  it  operates.  Among  the  more  important 
factors  which  should  be  given  consideration  in  selecting  a  pooling 
plan  are  the  following : 

1.  Accuracy  with  which  the  fruit  can  be  graded. 

2.  Variations  in  the  quality  of  the  fruit  because  of  (a)  differences 
in  the  efficiency  of  the  growers  or  (b)  differences  in  the  location  of 
the  orchards. 

3.  Existence  of  normal  seasonal  variation  in  the  prices  of  the  fruit. 

4.  Variations  in  the  time  of  harvesting  fruit  because  of  (a)  differ- 
ences in  the  efficiency  of  the  growers  or  (&)  differences  in  the  location 
of  the  orchards. 

5.  Distance  which  the  fruit  can  be  hauled  to  the  packing  plant 
without  incurring  excessive  costs  or  causing  damage  to  fruit. 

6.  Economies  of  a  large-scale  plant  for  handling  a  particular  kind 
of  fruit. 

7.  Importance  of  market  risks. 

8.  Amount  of  control  needed  by  the  management  to  promote 
orderly  marketing. 


STATION  PUBLICATIONS  AVAILABLE   FOE  FREE   DISTRIBUTION 


No. 

275.  The     Cultivation     of     Belladonna     in 

California. 

276.  The  Pomegranate. 

277.  Sudan   Grass. 

278.  Grain    Sorghums. 

279.  Irrigation   of  Rice   in   California. 
283.  The  Olive  Insects  of  California. 
294.   Bean   Culture  in   California. 

304.  A  Study  of  the  Effects  of  Freezes  on 
Citrus    in    California. 

310.   Plum    Pollination. 

312.  Mariout  Barley. 

813.  Pruning  Young  Deciduous  Fruit 
Trees. 

319.   Caprifigs    and   Caprification. 

324.  Storage  of  Perishable  Fruit  at  Freez- 
ing Temperatures. 

825.  Rice  Irrigation  Measurements  and 
Experiments  in  Sacramento  Valley, 
1914-1919. 

328.   Prune   Growing   in    California. 

331.   Phylloxera-Resistant    Stocks. 

335.  Cocoanut  Meal  as  a  Feed  for  Dairy 
Cows   and   Other  Livestock. 

339.  The    Relative    Cost    of    Making    Logs 

from   Small   and  Large  Timber. 

340.  Control     of     the     Pocket     Gopher     in 

California. 

343.  Cheese    Pests    and    Their    Control. 

344.  Cold    Storage   as   an   Aid   to   the   Mar- 

keting of  Plums. 

346.  Almond   Pollination. 

347.  The  Control  of  Red  Spiders  in  Decid- 

uous Orchards. 

348.  Pruning  Young  Olive  Trees. 

349.  A     Study    of    Sidedraft    and    Tractor 

Hitches. 
850.   Agriculture      in      Cut-over      Redwood 
Lands. 

352.  Further  Experiments  in  Plum  Pollina- 

tion. 

353.  Bovine   Infectious   Abortion. 

354.  Results  of  Rice  Experiments  in   1922. 

357.  A    Self-mixing    Dusting    Machine    for 

Applying      Dry       Insecticides       and 
Fungicides. 

358.  Black    Measles,    Water    Berries,    and 

Related  Vine  Troubles. 

361.  Preliminary   Yield   Tables   for    Second 

Growth  Redwood. 

362.  Dust  and  the  Tractor  Engine. 

363.  The  Pruning  of  Citrus  Trees  in  Cali- 

fornia. 

364.  Fungicidal    Dusts    for   the    Control    of 

Bunt. 

365.  Avocado  Culture  in  California. 

366.  Turkish  Tobacco  Culture,   Curing  and 

Marketing. 

367.  Methods  of  Harvesting  and  Irrigation 

in   Relation  of  Mouldy  Walnuts. 

368.  Bacterial  Decomposition  of  Olives  dur- 

ing Pickling. 

369.  Comparison     of     Woods     for     Butter 

Boxes. 

370.  Browning  of  Yellow  Newtown  Apples. 

371.  The    Relative    Cost   of    Yarding    Small 

and   Large  Timber. 

372.  The  Cost  of  Producing  Market  Milk  and 

Butterfat  on  246  California  Dairies. 

373.  Pear   Pollination. 

374.  A  Survey  of  Orchard  Practices  in  the 

Citrus    Industry  of    Southern    Cali- 
fornia. 

375.  Results   of   Rice   Experiments   at   Cor- 

tena,    1923. 

376.  Sun-Drying  and  Dehydration  of  Wal- 

nuts. 

377.  The   Cold   Storage   of  Pears. 

379.  Walnut   Culture   in   California. 

380.  Growth    of    Eucalyptus    in    California 

Plantations. 

381.  Growing     and     Handling     Asparagus 

Crowns. 


BULLETINS 
No. 


382. 

383. 

385. 
386. 

387. 
388. 

389. 
390. 

391. 

392. 
393. 
394. 

395. 
896. 

397. 

398. 
399. 


400. 
401. 

402. 
403. 
404. 
405. 
406. 
407. 


408. 
409. 


410. 
411. 
412. 

413. 

414. 

415. 
416. 

417. 

418. 

419. 

420. 

421. 
422. 

423. 

424. 

425. 
426. 

427. 

428. 


Pumping  for  Drainage  in  the  San 
Joaquin    Valley,    California. 

Monilia  Blossom  Blight  (Brown  Rot) 
of  Apricot. 

Pollination    of    the    Sweet    Cherry. 

Pruning  Bearing  Deciduous  Fruit 
Trees. 

Fig   Smut. 

The  Principles  and  Practice  of  Sun- 
drying  Fruit. 

Berseem  or   Egyptian   Clover. 

Harvesting  and  Packing  Grapes  in 
California. 

Machines  for  Coating  Seed  Wheat  with 
Copper    Carbonate   Dust. 

Fruit    Juice    Concentrates. 

Crop  Sequences  at  Davis. 

Cereal  Hay  Production  in  California. 
Feeding  Trials  with  Cereal  Hay. 

Bark   Diseases   of   Citrus  Trees. 

The  Mat  Bean  (Phaseolus  aconitifo- 
lius). 

Manufacture  of  Roquefort  Type  Cheese 
from   Goat's   Milk. 

Orchard  Heating  in  California. 

The  Blackberry  Mite,  the  Cause  of 
Redberry  Disease  of  the  Himalaya 
Blackberry,    and    its    Control. 

The  Utilization  of  Surplus  Plums. 

Cost  of  Work  Horses  on  California 
Farms. 

The  Codling  Moth  in  Walnuts. 

Farm-Accounting  Associations. 

The  Dehydration  of  Prunes. 

Citrus  Culture  in  Central  California. 

Stationary  Spray  Plants  in  California. 

Yield,  Stand  and  Volume  Tables  for 
White  Fir  in  the  California  Pine 
Region. 

Alternaria  Rot  of  Lemons. 

The  Digestibility  of  Certain  Fruit  By- 
products as  Determined  for  Rumi- 
nants. 

Factors  Affecting  the  Quality  of  Fresh 
Asparagus  after  it  is  Harvested. 

Paradichlorobenzene  as  a  Soil  Fumi- 
gant. 

A  Study  of  the  Relative  Values  of  Cer- 
tain Root  Crops  and  Salmon  Oil  as 
Sources  of  Vitamin  A  for  Poultry. 

The  California  Poultry  Industry;  a 
Statistical   Study. 

Planting  and  Thinning  Distances  for 
Deciduous  Fruit  Trees. 

The  Tractor  on  California  Farms. 

Culture  of  the  Oriental  Persimmon 
in    California. 

Poultry  Feeding:  Principles  and 
Practice. 

A  Study  of  Various  Rations  for 
Finishing  Range  Calves  as  Baby 
Beeves. 

Economic  Aspects  of  the  Cantaloupe 
Industry. 

Rice  and  Rice  By-products  as  Feeds 
for   Fattening    Swine. 

Beef   Cattle   Feeding   Trials,    1921-24. 

Cost  of  Producing  Almonds  in  Cali- 
fornia ;  a  Progress  Report. 

Apricots  (Series  on  California  Crops 
and  Prices). 

The  Relation  of  Rate  of  Maturity  to 
Egg  Production. 

Apple   Growing   in   California. 

Apple  Pollination  Studies  in  Cali- 
fornia. 

The  Value  of  Orange  Pulp  for  Milk 
Production. 

The  Relation  of  Maturity  of  Cali- 
fornia Plums  to  Shipping  and 
Dessert   Quality. 


No. 

87.  Alfalfa. 
117.  The    Selection    and    Cost    of    a    Small 

Pumping  Plant. 
127.  House    Fumigation. 
129.  The  Control  of  Citrus  Insects. 
136.  Melilotus    indica    as    a    Green-Manure 

Crop  for  California. 
144.   Oidium    or    Powdery    Mildew    of    the 

Vine. 
157.   Control  of  the  Pear  Scab. 
160.   Lettuce  Growing  in  California. 
164.   Small  Fruit  Culture  in  California. 
166.   The   County  Farm  Bureau. 
170.   Fertilizing     California     Soils    for     the 

1918   Crop. 
173.  The    Construction    of   the   Wood-Hoop 

Silo. 

178.  The  Packing  of  Apples   in   California. 

179.  Factors    of    Importance    in    Producing 

Milk  of  Low  Bacterial  Count. 
190.  Agriculture  Clubs  in  California. 
199.   Onion    Growing   in    California. 

202.  County   Organizations   for   Rural   Fire 

Control. 

203.  Peat   as   a   Manure   Substitute. 

209.  The  Function  of  the  Farm  Bureau.. 

210.  Suggestions  to  the  Settler  in  California. 
212.   Salvaging    Rain-Damaged    Prunes. 
215.   Feeding  Dairy  Cows  in  California. 
217.  Methods   for   Marketing  Vegetables   in 

California. 
220.   Unfermented   Fruit  Juices. 
228.   Vineyard  Irrigation  in  Arid  Climates. 

230.  Testing  Milk,    Cream,    and   Skim   Milk 

for  Butterfat. 

231.  The    Home   Vineyard. 

232.  Harvesting    and    Handling    California 

Cherries   for    Eastern    Shipment. 

234.  Winter  Injury  to  Young  Walnut  Trees 

during  1921-22. 

235.  Soil     Analysis     and     Soil     and     Plant 

Inter-relations. 

236.  The    Common     Hawks     and    Owls    of 

California    from    the    Standpoint    of 
the  Rancher. 

237.  Directions  for  the  Tanning  and  Dress- 

ing of  Furs. 

238.  The  Apricot  in  California. 

239.  Harvesting     and     Handling     Apricots 

and  Plums  for  Eastern  Shipment. 

240.  Harvesting    and    Handling    Pears    for 

Eastern   Shipment. 

241.  Harvesting  and  Handling  Peaches  for 

Eastern   Shipment. 

243.  Marmalade  Juice  and  Jelly  Juice  from 

Citrus  Fruits. 

244.  Central  Wire  Bracing  for  Fruit  Trees. 

245.  Vine   Pruning   Systems. 

247.  Colonization    and   Rural   Development. 

248.  Some   Common    Errors    in   Vine  Prun- 

ing and  Their  Remedies. 

249.  Replacing    Missing    Vines. 

250.  Measurement   of   Irrigation   Water   on 

the  Farm. 

252.  Supports  for  Vines. 

253.  Vineyard  Plans. 

254.  The  Use  of  Artificial  Light  to  Increase 

Winter   Egg   Production. 


CIRCULARS 
No. 

255. 


256. 
257. 
258. 
259. 
261. 
262. 
263. 
264. 

265. 
266. 

267. 

269. 
270. 
272. 

273. 

274. 

276. 

277. 

278. 
279. 
281. 


282. 

283. 
284. 
285. 
286. 
287. 
288. 
289. 
290. 
291. 

292. 
293. 
294. 
295. 

296. 

298. 

299. 
300. 
301. 
302. 
303. 

304, 
305. 
308. 

307. 
308, 
309. 


Leguminous  Plants  as  Organic  Fertil- 
izer  in    California    Agriculture. 

The   Control   of  Wild   Morning   Glory. 

The  Small-Seeded  Horse  Bean. 

Thinning   Deciduous   Fruits. 

Pear  By-products. 

Sewing  Grain  Sacks. 

Cabbage  Growing  in  California. 

Tomato  Production  in  California. 

Preliminary  Essentials  to  Bovine 
Tuberculosis  Control. 

Plant  Disease  and   Pest  Control. 

Analyzing  the  Citrus  Orchard  by 
Means  of   Simple  Tree   Records. 

The  Tendency  of  Tractors  to  Rise  in 
Front;   Causes  and  Remedies. 

An   Orchard  Brush  Burner. 

A  Farm  Septic  Tank. 

California  Farm  Tenancy  and  Methods 
of  Leasing. 

Saving  the   Gophered   Citrus  Tree. 

Fusarium  Wilt  of  Tomato  and  its  Con- 
trol by  Means  of  Resistant  Varieties. 

Home  Canning. 

Head,  Cane,  and  Cordon  Pruning  of 
Vines. 

Olive  Pickling  in  Mediterranean  Coun- 
tries. 

The  Preparation  and  Refining  of  Olive 
Oil   in    Southern   Europe. 

The  Results  of  a  Survey  to  Determine 
the  Cost  of  Producing  Beef  in  Cali- 
fornia. 

Prevention  of  Insect  Attack  on  Stored 
Grain. 

Fertilizing  Citrus  Trees  in  California. 

The   Almond   in   California. 

Sweet  Potato  Production  in  California. 

Milk  Houses  for  California  Dairies. 

Potato   Production   in   California. 

Phylloxera   Resistant  Vineyards. 

Oak  Fungus  in  Orchard  Trees. 

The  Tangier  Pea. 

Blackhead  and  Other  Causes  of  Loss 
of  Turkeys  in   California. 

Alkali  Soils. 

The    Basis    of   Grape    Standardization. 

Propagation   of   Deciduous   Fruits. 

The  Growing  and  Handling  of  Head 
'  Lettuce  in   California. 

Control  of  the  California  Ground 
Squirrel. 

The  Possibilities  and  Limitations  of 
Cooperative  Marketing. 

Poultry   Breeding   Records. 

Coccidiosis  of  Chickens. 

Buckeye  Poisoning  of  the  Honey  Bee. 

The   Sugar  Beet  in   California. 

A  Promising  Remedy  for  Black  Measles 
of  the  Vine. 

Drainage  on  the  Farm. 

Liming  the  Soil. 

A  General  Purpose  Soil  Auger  and  its 
Use  on  the  Farm. 

American   Foulbrood  and  its   Control. 

Cantaloupe  Production  in  California. 

Fruit  Tree  and   Orchard  Judging. 


The  publications  listed  above  may  be  had  by  addressing 

College  of  Agriculture, 

University  of  California, 

Berkeley,  California. 

13m-9,*27 


